Finance Minister Yair Lapid said Tuesday night that he was prepared to go to
“war” over his budget, which he said would include cuts to defense spending and
hinted would include changes in wage agreements.
Speaking at the
Institute for National Security Studies conference at Tel Aviv University, Lapid
said, “You know that there will be war over several of the things I’ve outlined
here, perhaps over all of them. I say, ‘Let there be war.’”
Lapid said the
deficit constraints meant the Treasury would have to look into “every old
agreement that they tell us they can’t touch ‘because that’s the way it always
Fresh off a two-day airline strike
, the Histadrut labor federation said
on Monday that it was forming a united front with union leaders in the fields of
medicine and teaching and with university students in preparation for budget
The central guiding factor for the budget, Lapid said, was to aid
“the working man,” the Israeli citizens who work and pay taxes. The issues Lapid
highlighted as “betraying” Israel’s workers included low state royalties on
natural resource extraction; healthy people living on disability payments;
narrow interests controlling the country’s ports; public services and product
prices; high daycare costs; housing benefits that put those who serve in the
army at a disadvantage; and water prices that are 4 percent too high because of
inefficiencies in the market.
The finance minister also said the defense
budget would have to be cut, and the ultra-Orthodox population would have to be
educated and integrated into the workforce, which would add a full percentage
point to the nation’s GDP.
In an earlier meeting with Union of Local
Authorities chairman Shlomo Buhbut, Lapid said that everyone would need to
participate in the cuts, but promised to try and “minimize the damage” of
deficit reduction measures to the local authorities.
Outgoing Bank of
Israel Gov. Stanley Fischer, who spoke earlier at the conference, said the
budgetary problems were dire.
“The Israeli economy is very good, but not
great, as it was in previous years,” he said. “The reason is the
budget. Many people ask what the problem with a 4% deficit
is. After all, it’s only 1% more than 3%.
“The answer is very
simple,” he continued. “The reason is that unlike the United States or Europe,
Israel’s economy is at full employment, which means it can’t expect an extra
boost in growth to bring down the deficit.”
Fischer praised Lapid for
sticking with the 3% deficit limit, saying it was a brave decision that would
ward off future risks of the deficit rising.
“If the economy were to
enter a recession in the coming years, an event which is not expected but is not
impossible, the deficit would grow another 4% to the highest level we’ve seen in
the 21st century,” he stated.
Fischer also said that Israel’s
export-oriented economy faces challenges both from slowing world economic growth
that inhibits trade, and the bank’s own low interest rates, which put upward
pressure on the shekel and makes Israeli products more expensive on the world
In his speech Tuesday night, Lapid referred to the deficit as a
“budget hole of NIS 35 billion,” repeating a figure he used at the Knesset on
Monday that drew him into an online spat with opposition leader Shelly
Posting on Facebook a recent Treasury document on the deficit
Tuesday morning, Yacimovich noted that the most recent figures actually pegged
the cumulative deficit for the past year (March 2012 – March 2013) at NIS 42b.,
around 4.5% of GDP.
“Is this Lapid’s enormous mistake or painful
ignorance?” she wrote. “A difference of NIS 7 billion is so dramatic to all of
our lives that there are almost no words to describe the depth of
NIS 7 billion, the Labor Party leader noted, was the
entire higher education budget, greater than the budget for hospitals and triple
the budget of the Economy and Trade Ministry.
“The state budget is too
important for errors of this magnitude,” she scolded.
Nilly Richman shot back at Yacimovich, posting a rebuttal in the comments
“The annual deficit for financing in 2012, which is the deficit
that includes net credit receipts, came to NIS 34.6b., and that’s the deficit
the finance minister was talking about,” she wrote.
“This is the number
accepted by the Bank of Israel, the Finance Ministry and the Israeli
Because Israel takes in money from loans it has given out,
the actual amount of money it has to spend in order to finance the deficit is
lower than the deficit itself. Thus, in 2012, Israel only had to finance NIS
34.6b. of the NIS 39b. it overspent in the budget.
generally falls in line with Lapid’s use of the term “overdraft,” and in Tuesday
night’s speech he explained that budget cuts were necessary because “the larger
the overdraft, the larger the interest on it, and instead of spending billions
on education and health, we spend those same billions on Israel’s growing
Chiding Yacimovich on Facebook, Richman said, “I have no doubt
you made the mistake in good faith, and we’ll be happy to pass the real data on
to you,” adding, “It’s very important that the economic picture will be
presented fully for the opposition leader, in order to facilitate an appropriate
Yacimovich dismissed the
“Sometimes it’s easier to admit to a mistake. After hours of
searching through Treasury data since my post this morning, Lapid found the
number that fits the mistake he made,” she said.
“Lapid’s decision to use
a deficit figure that includes net credit received is puzzling, to say the
Indeed, as Richman admitted, the figure Lapid used referred to
last year’s deficit, not projections for the 2013 and 2014 budgets.
general, when economic policy makers refer to the deficit and the deficit
target, they are referring to the basic difference between spending and revenue
in the budget, without reference to the net credit or the amount of financing
necessary for the deficit.