Lapid at faction meeting 370.
(photo credit: Marc Israel Sellem/The Jerusalem Post)
Following a downgrade to Israel’s S&P credit rating on Thursday night,
Finance Minister Yair Lapid on Friday backed down on his proposal to raise the
2013 deficit target to 4.9 percent of GDP from its current 3%, agreeing to set
it at 4.65% instead.
The proposal, which will be put to a vote in
Sunday’s cabinet meeting, will also raise the 2014 deficit limit to 3% from its
current 2.75%, as planned.
Responding to the local currency credit rating
downgrade, to A+ from AA-, Lapid said, “We have to look in the mirror and say
honestly: 2013 and 2014 are two years in which we’ll close the overdraft, and in
the process start to soar.”
Lapid’s change of heart came about in
“marathon” staff-level phone discussions on Friday, as Prime Minister Binyamin
Netanyahu and Bank of Israel Gov. Stanley Fischer were scheduled to meet on the
Fischer, in particular, has been vociferous in his opposition to
growing the deficit, calling it the “main problem in the Israeli
In his annual report in April, Fischer said that without any
action, the deficit could reach 6.5% of GDP, but predicted that even if the
target was kept at 3% and cuts were planned accordingly, the actual deficit
would end up around 3.6%.
Because the 2013-14 budget will not pass until
late in the year, however, the government is running on an automatic
month-to-month version of the 2012 budget, which has already raised the
cumulative deficit for the past 12 months to 4.5%.
In preparing the
budget, Lapid has faced scrutiny from a variety of pressure groups and interests
seeking to prevent him from making cuts in their sectors. The Histadrut labor
federation threatened a general strike over potential cuts to government
workers, doctors opened a labor dispute over possible changes to their wage
agreement and business groups warned that higher corporate taxes and tariffs
would hurt the economy.
Meanwhile, politicians from Labor decried
possible cuts to welfare and education, Shas representatives demanded continued
benefits for large families, and Likud MKs tried to head off defense
By law, the cabinet must approve the budget by June 12 and the
Knesset must approve it by August 1, or else a new election will be held.