Fischer: Larger defense budget means higher taxes

Economy in good shape despite worsening euro-zone debt crisis; need for responsible budgetary policy.

Stanley Fischer 311 R (photo credit: REUTERS/Baz Ratner)
Stanley Fischer 311 R
(photo credit: REUTERS/Baz Ratner)
If the state decides to expand defense expenditures, it must increase taxes rather than expanding the budget deficit, Bank of Israel Governor Stanley Fischer told the Knesset Finance Committee on Wednesday.
The Israeli economy was still in good shape despite the worsening euro-zone debt crisis, he said, but he urged responsible budgetary policy to deal with it.
“We have more freedom to act than the European nations and the US because of the correct steps the government took in the past,” Fischer said. “If we behave correctly, we can successfully deal with the risks before us.”
Overall signs remained positive, he said, pointing to the 5.9 percent unemployment rate, growth in building starts and increased foreign investment. But he acknowledged some negative signs, mainly the drop in exports and taxation and revenues and revised growth forecasts.
Fischer said the Bank of Israel would revise its 2012 growth forecast of 3.2% to something closer to the OECD’s estimate of 2.9%. British investment bank Barclays Capital forecast in its quarterly forecast of emerging markets Wednesday that the Israeli economy would grow at just 2.5% next year.
Committee members criticized Fischer for using the word “populism” to describe increased expenditure to meet security and social needs.
“The use of the phrase populism is out of place,” MK Miri Regev (Likud). “The role of the bank is to examine what is happening in the world but not to express an opinion on what is populist and what is not. It is not always bad to be populist. We want our economic success to be enjoyed by the entire population.”
MK Amir Peretz (Labor) said other Bank of Israel governors were more socially aware than Fischer and had argued in favor of policies such as raising the minimum wage. Not everything the bank espouses should be regarded as the truth, he said, and not everything it opposed should be regarded as populism.
MK Majallie Whbee (Kadima) said he feared the government would take advantage of what Fischer said and ignore social needs.
MK Zevulun Orlev (Habayit Hayehudi) asked why the bank sees the economy only through interest rate and budget-deficit figures while ignoring the cost of living and the poverty rate.
MK David Azoulay (Shas) said if discussing the cost of living and the inability of young couples to obtain housing is populism, then he would be proud to call himself a populist.
Meanwhile, the Treasury briefed reporters Wednesday on the defense budget, saying it is given only a partial picture of the Defense Ministry’s expenditure. According to the Treasury, Tzachi Malach, the accountant assigned to the Defense Ministry, signs all of the ministry’s outgoing expenses but cannot keep track of budget deviations.
The Treasury said communications expenses constitute a significant portion of the defense budget, and it has no way to keep track of how much the Defense Ministry spends in this area. It said the ministry can delay communications payments to later years, making it impossible to cut the defense budget effectively in 2012. Likewise, it said it has no idea how much the IDF spends on wages and accused Defense Ministry officials of covering up Treasury attempts to access this information.