Bank of Israel: Yair Lapid must adjust 2015 budget by NIS 18b.

Finance Minister Yair Lapid will have to find NIS 18 billion worth of new revenues or cuts from the 2015 budget, the Bank of Israel’s preliminary estimates found on Monday.

At the same time, it praised the successful deficit reduction program in the 2013- 2014 budget, saying that it “restored the credibility of the government’s commitment to the declining deficit path set in 2009, which is expected to reduce the debt to GDP ratio to about 60 percent by the end of the decade.”

To hit that target, Lapid raised taxes and cut spending in controversial fields such as child allotments.

The budgetary problems the government will face for 2015 result from existing programs whose costs are expected to grow, and an expectation that revenues will not keep up.

Many of the revenues that helped stabilize the 2013-2014 budget were one-off events, such as big companies agreeing to release “trapped profits,” which were taxed, or big ticket start-up sales, such as the $1 billion sale of Waze to Google.

In 2015, the budget deficit will not be allowed to exceed 2.5% of GDP.

Furthermore, the formula for the expenditure rule, which was tightened this year, will allow spending to grow by just 2.6% in real terms.

That figure does not take price increases into account, which means that the way price levels are calculated could make a big difference – NIS 4.5b. – in how much the budget will be allowed to grow.

The determination of whether a price adjustment will take place in 2015 would be a legal one; though no adjustment was scheduled, the many rule changes may make one necessary.

Either way, Lapid will still have to figure out how to adjust the budget by NIS 18b.

The only question that remains is how much of that will be required to come from spending cuts. If there is a price adjustment, it would be about NIS 12b. in cuts and NIS 6b. in new revenues.

If there is no price adjustment, it would be NIS 7b. in cuts and NIS 11b. in new revenues.

Opposition politicians said the report’s findings were an indication of Lapid’s failures.

“Remind me who promised us during the last hard budget that in a year-and-a-half everything would be good here,” said Labor MK Itzik Shmuli, calling Lapid’s policies economically and socially irresponsible.

Meretz MK Zehava Gal-On said the budget problems were the result of misplaced priorities and spending on settlements.

“While Lapid reminds us that the account is empty and so there is no money for welfare, education and health, he approves additions to the defense budget, which has already proved it has no shame in making threats to get more money,” Gal-On said. “Meanwhile, tomorrow another NIS 107 million will be approved for the settlement division.”

The report also said that much of the uncertainty that accompanied the budgeting process could be eliminated with reforms in the process.

“It is important that the government soon adopt an effective system to control the framework of its expenditures in the coming years, which will monitor its expenditure commitments and require an immediate reaction to the development of deviations from the expenditure ceiling for coming years,” the report said.