Finance Minister Yair Lapid presented the 2015 budget to the Knesset Finance Committee Monday, as sparring between coalition parties about its content and his ‘Zero VAT’ on housing bill raged on.
At the request of Yisrael Beytenu, Finance Committee chairman Nissan Slomiansky (Bayit Yehudi) postponed the discussion of Lapid’s flagship housing policy, which would exempt some first-time home-buyers from paying 18 percent VAT, until later in the week.
Though the Finance Committee nearly approved the Zero VAT bill for its second and third (final) reading last week, it cannot send the bill to the plenum until it considers a series of revisions proposed by the opposition.
Foreign Minister Avigdor Liberman said at the Yisrael Beytenu faction meeting that “the budget is a whole package, not separate parts, and that is how we need to pass it.”
Liberman added that he is not trying to start a fight in the coalition and that any objections he has to budget-related bills or anything else are topical.
However, the Finance Committee did not delay expanding the bill’s beneficiaries to include homes in projects in the periphery that have 15 or more units.
In addition to withdrawing its support for Zero VAT, Yisrael Beytenu joined the Likud in demanding that the economic arrangements bill – the legislation that passes laws alongside the budget to coordinate economic policy – be split up by topic into different committees.
Such a divide, which Lapid opposes, threatens to drag out the budget process beyond the year-end deadline, which can be extended until March without requiring a new election, and create new battlegrounds in each committee.
Some issues that Likud and Yisrael Beytenu seek to separate from the economic arrangements bill are Yesh Atid proposals taxing private hospitals and medical tourism, as well as controlling the use of NIS 1 billion of the JNF-KKL’s money.
Coalition chairman Ze’ev Elkin (Likud) said that “the ball is in Lapid’s court” as to whether the budget will move forward or not, and as a result, whether or not there will be an election.
Elkin explained that before the budget passed its first vote, the Treasury came to an agreement with him and Knesset Speaker Yuli Edelstein to separate controversial sections from the economic arrangements bill, as was customary in recent years, but now Lapid is refusing to do so.
“We are ready to go back to these agreements at any time,” Elkin stated.
Speaking at the Finance Committee, Lapid said: “I will not give in to political blackmail. The EAB is one of the thinnest this House has ever seen.”
Slomiansky said that the problems could be resolved in 10 minutes and that there was no reason to delay the budget and economic arrangements bill.
Lapid reiterated that it was a “social budget,” showing off the increased spending in areas such as health, education, welfare, and public security.
“I would rather not pass a budget than harm what is important to our citizens,” he said.
However, the Bank of Israel has countered that the spending increases still leave Israel well below OECD averages. The increases came entirely from automatic outlays set previously.
Lapid called for the Defense Ministry to transfer control of retirement funds and rehabilitations – areas often seen as overinflated – out of its budgetary framework, which would leave the defense budget devoted more to defense measures. Interest and debt payments aside, that budget represents about a quarter of state spending.
Deputy Finance Minister Micky Levy presented the committee with the essence of the budget.
Even though it raised the deficit target to 3.4% of GDP, well above the planned 2.5% and the 3% the Bank of Israel recommended, the finance ministry still had to find NIS 4.5b. in cuts and revenues to hit the target.
The NIS 333.3b. budget was NIS 1.2b. higher than the legal spending limit allowed, and revenues were projected to be NIS 3.3b. shorter than that amount.
To fill the gap, the ministry proposed getting JNF-KKL to carry out NIS 1b. worth of projects; cutting public workers to the tune of NIS 100m.; getting NIS 100m. from levies on private hospitals and medical tourism; extracting NIS 900m. from one-time dividends from companies; saving NIS 600m. from closing tax loopholes; collecting NIS 500m from the Aviation Authority; and raising NIS 500m.
through privatizing portions of state-owned companies. Another NIS 800m. in savings came from smaller changes, Levy said.
Given the deficit’s size, Lapid’s Zero VAT bill caused uproar. The housing policy is slated to cost NIS 2b., but economists say the policy will not help bring down the soaring price of homes.
A Globes-sponsored Meidata survey of social media chatter found that the vast majority of Israelis did not think the Zero VAT plan would do any good.
The survey found that 48% of Israelis guess, as economists have argued, that the plan could have negative effects, raising prices and wasting tax money.
Another 26% said the plan constituted some sort of PR spin and was not serious. The remaining 26% thought it would help bring down the cost of housing.
Social media chatter, however, is not necessarily representative of the general public’s view, as it tends to represent a skewed portion of the population.
Lapid noted in his speech to the committee that the 0 VAT plan was just part of package of policies meant to bring down housing costs, including price targeting plans for new projects, umbrella agreements to fasttrack necessary infrastructure for building in certain cities and a fair rental law, among others.
Addressing Israel’s economic contraction in the third quarter – its first contraction in five years – Lapid said the results were expected because of Operation Protective Edge, the 50-day war with Hamas that took place in those months. The Finance Ministry still expects the economy to grow a total of 2.4% this year, and 2.8% next year.
Opposition MKs blasted Lapid over the decline, pointing out that the economy was already moderating before the war.
“There were also rockets in previous rounds of fighting, and there was no Iron Dome, and the economy didn’t collapse,” said Labor MK Erel Margalit.
Meanwhile, Meretz leader Zehava Gal-On said that if she had a shekel for every time Lapid lied, she could pay off the deficit.