'Deficit to reach 3.4% in 2012 due to tax shortfall'

Finance Minister Steinitz says growth forecast downgraded because of expectations of global economic slowdown.

Finance Minister Yuval Steinitz 311 R (photo credit: REUTERS/Ronen Zvulun)
Finance Minister Yuval Steinitz 311 R
(photo credit: REUTERS/Ronen Zvulun)
The budget deficit is expected to expand to 3.4 percent in 2012 due to an expected tax-revenue shortfall of about NIS 11 billion, Finance Minister Yuval Steinitz said Wednesday.
The deficit of 2% set in the government’s two-year budget would not be met, with tax revenues expected to reach NIS 221b. this year, as opposed to the initial forecast of NIS 232.3b., he told the Knesset Finance Committee.
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The Treasury has also downgraded Israel’s 2012 economic growth forecast from 4% to 3.2% because of expectations of a global economic slowdown and reduced demand for Israeli exports, Steinitz said. The Bank of Israel and the OECD forecast growth of 2.8% and 2.9%, respectively.
“This will be a challenging year,” Steinitz said, adding that the Israeli economy faces three major threats: the potential unraveling of the euro zone, the prospect of a credit crunch affecting the property market, and the feeling among members of the business sector that they have been “under attack” since last year’s public demonstrations over socioeconomic issues.
The business sector and foreign investors “both have a sense of being under attack, of taunts, of threats, of fears, and the result of that is hesitation when it comes to investments,” Steinitz said. It would only take the withdrawal of about 10% of potential investments to cause the economy substantial damage, he said.
Looking back at 2011, Steinitz said the economy grew 4.8% according to Finance Ministry estimates, mirroring the 2010 growth rate. The Treasury collected NIS 211.3b. in tax revenues, the budget deficit stood at 3.3%, and the public debt-to-GDP ratio dropped to 74%, according to early estimates.
“This is the second year in which Israel has grown faster than all the other developed nations,” Steinitz said. “We are the only Western country whose level of investments in hitech, industry and other sectors is higher than before the [last global financial] crisis. That is the secret of our economic growth.”
Finance Ministry director-general Doron Cohen warned that economic growth could only meet the predicted rate of 3.2% this year if exports grow by at least 2.5%.
Budget director Gal Hershkovitz said the government must remain responsible and refrain from increasing expenditures in an uncontrolled manner.