Despite increases in direct and indirect taxes to bring the budget deficit for 2013 and 2014 down, planned spending for multi-year projects means taxes may have to rise again in 2015, the Bank of Israel revealed on Sunday.Even if it brings spending in line with the legally mandated limit, a provision for which Finance Minister Yair Lapid carved out an exception in the 2013 budget, spending would still be too high to bring down the deficit to its target levels.Already, the 2015 budget is projected to exceed the legal spending limit by NIS 6 billion.“In order to stay within the deficit ceiling in 2015 and 2016 there will be a need for additional revenues of about NIS 4b. (0.4 percent of GDP) in 2015 and an additional NIS 7b. (0.5% of GDP) in 2016,” the report said.Without the NIS 18b.spending reduction and NIS 15b. tax increase in the budget approved by the government in May, the report said, the deficit will have climbed to 6% of GDP and put Israel’s debt on the trajectory to reach 100% of GDP by the end of the decade. Such a high debt ratio would endanger its financial stability and make interest payments all the more burdensome.The budget proposal approved for 2013-2014 will lop 0.7% off economic growth in 2014, a fact the Bank of Israel said was acceptable given the importance of fiscal responsibility.The Bank of Israel sees in the chronic spending projection a structural problem that will likely continue into the future unless the government finds a way to mediate or regulate such commitments.“Since the current need for adjustments derives to a large extent from the gap between the cost of multi-year programs that the government adopted and the expenditure ceiling, it is important to adopt a mechanism that will monitor the development of such gaps on a continuous basis and will require them to be dealt with in a timely manner.”Such a system, the report said, would require the government to immediately offset promised future spending that overshot the legal expenditure limit.
