Knesset Finance Committee changes spending formula, requiring pullback for 2015

Planned spending for the 2015 budget will have to be drawn down from the current 3.8% increase to a 2.6% increase.

Lapid at Finance C'tee meeting 370 (photo credit: Knesset)
Lapid at Finance C'tee meeting 370
(photo credit: Knesset)
The Knesset Finance Committee on Wednesday approved a bill to change the rule governing how much budgetary spending can grow each year.
As a result, planned spending for the 2015 budget will have to be drawn down from the current 3.8 percent increase to a 2.6 percent increase.
Each year, the budget is confined by two limits: the spending rule, which calculates how much spending can increase over the previous year, and the deficit target, which requires a plan to ensure that spending does not overshoot revenues by more than a certain amount.
By restricting the amount by which spending goes up, the government ensures it does not have to raise more taxes in order to fund the spending and hit its deficit target.
Because many government programs have a natural growth path – for example, more students implies more education funds, even if there are no new programs – the 2015 budget is already projected to spend more than the allowed increase on the 2014 budget.
As a result of Wednesday’s rule change, which sets the spending formula to correspond more closely to Israel’s debt goals, the government will have to cut the planned budget’s growth by about NIS 4.7 billion more than anticipated.
“Limiting government spending is a show of responsibility on the Finance Committee’s part, which will prevent the growth of the deficit, the growth of the national debt, and therefore reduce the interest payments that the state must pay on the debt, which is like throwing money away,” said Finance Committee Chairman MK Nissan Slomianksy (Bayit Yehudi).
Members of the opposition, however, argued that cutting back spending would hurt Israel’s weakest populations.
“Additional government spending is meant to aid the weak sectors,” said MK Moshe Gafni (United Torah Judaism). “There will be less for the disabled, less for health, less for welfare and even less for the middle class.”
The committee had postponed the vote on Monday following a heated debate on the issue.
Hadash MK Dov Henin argued at the time that it was the deficit, not the spending limit, which was the main concern, because taxes could always be raised to counter increased spending.
Finance Ministry budget director Amir Levy said that Israel’s moves to reduce its debt over the past decade had freed up a cumulative NIS 40b. that could be spent on citizens instead of debt repayments.