Lapid lays groundwork for ‘hard, unpopular’ cuts

Finance minister continues to work on tough budget cuts, Israeli media outlets report figures for programs to be cut.

Lapid and Steinitz at Finance Ministry handover 370 (photo credit: Marc Israel Sellem/The Jerusalem Post)
Lapid and Steinitz at Finance Ministry handover 370
(photo credit: Marc Israel Sellem/The Jerusalem Post)
Finance Minister Yair Lapid continued laying the groundwork for tough budget cuts through the Passover holiday, posting a video on his Facebook account in which he promised to make “hard” and “unpopular” decisions.
“This will be a long path and an unpopular path, and I’ll make the hard decisions because that’s what you sent me here to do,” Lapid said.
The video, in which Lapid compared his choices to those Moses had to make, followed several days of statements by the Yesh Atid leader preparing the public for difficult cuts. However, despite his comments on Saturday that the fiscal situation was “worse than I expected,” and his Monday comments that economic data had him “very worried,” the fundamental fiscal picture has changed little in recent months.
On Sunday the Bank of Israel noted that, legally, “the government must reduce the commitments by about NIS 13 billion” for the 2013 budget. It also pointed out that the budget deficit racked up between January and March of this year was already NIS 4.1 billion higher than expected for staying within the annual deficit target.
In a note linking how the deficit could affect the real economy, it added that “deviation in the government deficit is liable to lead to increased interest rates in the economy.” Raising interest rates would further boost the shekel, whose strength has dampened Israel’s exports by making its goods less competitive on the global market.
Though Lapid’s spokesman denied that any specific numbers had been agreed upon for how to reduce the deficit, several Israeli media outlets over the weekend reported tentative figures for programs that are likely to be cut with the agreement of Prime Minister Binyamin Netanyahu.
According to Yediot Aharonot, the defense budget would be reduced NIS 4.5b., child allotments would be cut by NIS 3.5b., and other public sector spending would be scaled back NIS 3b. On the tax side the paper reported that NIS 10b. worth of exemptions would be canceled, creating a NIS 22b. overall package of spending cuts and tax increases for 2013-2014.
Economic expert Eytan Sheshinski said Wednesday that tax exemptions were an area ripe for pulling in new revenues.
Speaking with Army Radio, Sheshinski said that the overall level of exemptions added up to NIS 40b. and included a VAT exemption on fruits and vegetables that costs the government NIS 1-2b.
The beginning of a new government term may be “the right time to overcome the political hurdles in order to reduce the tax exemptions,” he said, adding that changes to the capital investment law could also help direct government money more efficiently.
Tel Aviv University’s Eran Yashiv agreed that it would be difficult for Lapid to completely shield the middle class from tax increases, as the finance minister had promised in his party’s election campaign – a fact that politicians from the opposition picked up on as well.
“What happened to the Shas of the middle class?” asked Labor MK Itzik Shmuli, using one of Lapid’s election slogans.
“The fact of the matter is that the standing of the middle class, and within it young couples, will be even worse because Lapid and Netanyahu are basically the same thing.”
Meretz asked the opposition to gather 25 signatures in order to call a special recess-period session on the potential cuts.
“The weak sectors and middle class don’t have the luxury of refraining from watching over the Knesset, over the steps and cuts that Finance Minister Lapid is planning in order to close the monstrous deficit created by the failed policy of Netanyahu and the Right,” said Meretz chairwoman Zehava Gal-On. •