The Israeli government in session Monday June 24 2019, from left to right Foreign Minister Yisrael Katz, Finance Minister Moshe Kahlon, Prime Minister Benjamin Netanyahu, Cabinet Secretary Tzachi Braverman .
(photo credit: NOAM REVKIN FENTON / FLASH 90)
Government ministers voted to approve wide-ranging cuts presented by the Finance Ministry on Monday, slashing ministry budgets by over NIS 1.2 billion as the government seeks to combat the growing fiscal deficit.
The funding cuts, which affect all government ministries, will enable the transfer of finances to an ongoing security project, daycare subsidies for the 2019-2020 academic year and damages for residents of Moshav Mevo Modi’im, which was destroyed by wildfire in May. The government also approved revised growth forecasts until 2022.
“As we discuss these things, over NIS 1b., we can do one of two things,” Prime Minister Benjamin Netanyahu told cabinet ministers. “We can simply allocate the funds and thereby increase the deficit and say ‘We gave.’ The problem with this is that it is irresponsibility of the highest order because we need to set a limit, in the end, to these expenditures, and we are doing so here. In order to give, we need to take from another source. One can call this shifting – I call it cuts.”
Approximately NIS 800m., Netanyahu said, will be allocated to a “security project of unparalleled importance,” said to be a security barrier along the Gaza Strip border. NIS 350m. will be transferred to afternoon daycare programs and tens of millions of shekels will be paid to the residents of Moshav Mevo Modi’im.
Finance Minister Moshe Kahlon urged fellow ministers to act responsibly and support his ministry’s proposals, highlighting the challenges of tackling the deficit during election season.
The cuts were ultimately approved by the cabinet despite vocal opposition from several ministers to the plans, including Deputy Health Minister Ya’acov Litzman, Labor and Social Services Minister Haim Katz and Public Security Minister Gilad Erdan, both since the plans were published last week and during the cabinet debate.
“This is a blow to sick patients, and I am against any initiative to cut health funding,” said Litzman, who called for ministers to be responsible for selecting the areas subject to cuts, not the Treasury.
“The [Gaza] barrier is more important than children in distress? Or than the 187,000 senior citizens living below the poverty line? The way the decision was made is wrong,” said Katz.
The proposed cuts are part of the Finance Ministry’s plans to reduce the deficit to 3.7% by the end of 2022. Should the measures not take effect, however, the deficit could balloon to 4% in 2020 and 2021.
The government’s 2019 budget targeted a fiscal deficit of 2.9%, equivalent to NIS 40.2 billion.
The ministry also presented plans last week for additional cuts to government expenditure, valued at NIS 2.75b., and taxation reforms for the years 2020-2022. Measures to boost government revenues will include increased taxes on hybrid vehicles and solvents, used for diluting fuels.
Additional sources of revenue will include the transfer of funds from Israel’s national lottery company Mifal HaPais and the National Insurance Institute (Bituach Leumi).
Governor of the Bank of Israel Prof. Amir Yaron, attending the cabinet meeting, presented an even more severe fiscal forecast should reforms to rein in government spending and increase taxes not be implemented.
“In real terms, without corrective measures, the expected deficit is in excess of 4.5% of GDP,” said Yaron. “This is also based on the optimistic assumption that, throughout the entire period, GDP will increase in accordance with its potential, that the unemployment rate will remain at its historic low level, and that we will not deal with significant security threats. Otherwise, revenue growth will be lower than forecast, and the deficit will rise.”
Blue and White Party co-leader Yair Lapid, speaking in the Knesset plenum, said that the fiscal deficit was the result of Netanyahu handing out funds to “all the Knesset members that made some noise.”
“He gave to every party, and he gave and he gave and he gave. For whom was there nothing left? For the Israeli public,” said Lapid. “Netanyahu all the time boasts about the success of the Israeli economy. Those who stand behind the success are those that you aggravate each day.”
Rebecca Araten contributed to this report.
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