Lapid recants deficit target, setting it to 4.65%

Finance minister yields stance to raise 2013 deficit target following discussions with Netanyahu, Fischer.

Lapid at faction meeting 370 (photo credit: Marc Israel Sellem/The Jerusalem Post)
Lapid at faction meeting 370
(photo credit: Marc Israel Sellem/The Jerusalem Post)
Following a downgrade to Israel’s S&P credit rating on Thursday night, Finance Minister Yair Lapid on Friday backed down on his proposal to raise the 2013 deficit target to 4.9 percent of GDP from its current 3%, agreeing to set it at 4.65% instead.
The proposal, which will be put to a vote in Sunday’s cabinet meeting, will also raise the 2014 deficit limit to 3% from its current 2.75%, as planned.
Responding to the local currency credit rating downgrade, to A+ from AA-, Lapid said, “We have to look in the mirror and say honestly: 2013 and 2014 are two years in which we’ll close the overdraft, and in the process start to soar.”
Lapid’s change of heart came about in “marathon” staff-level phone discussions on Friday, as Prime Minister Binyamin Netanyahu and Bank of Israel Gov. Stanley Fischer were scheduled to meet on the issue.
Fischer, in particular, has been vociferous in his opposition to growing the deficit, calling it the “main problem in the Israeli economy.”
In his annual report in April, Fischer said that without any action, the deficit could reach 6.5% of GDP, but predicted that even if the target was kept at 3% and cuts were planned accordingly, the actual deficit would end up around 3.6%.
Because the 2013-14 budget will not pass until late in the year, however, the government is running on an automatic month-to-month version of the 2012 budget, which has already raised the cumulative deficit for the past 12 months to 4.5%.
In preparing the budget, Lapid has faced scrutiny from a variety of pressure groups and interests seeking to prevent him from making cuts in their sectors. The Histadrut labor federation threatened a general strike over potential cuts to government workers, doctors opened a labor dispute over possible changes to their wage agreement and business groups warned that higher corporate taxes and tariffs would hurt the economy.
Meanwhile, politicians from Labor decried possible cuts to welfare and education, Shas representatives demanded continued benefits for large families, and Likud MKs tried to head off defense cuts.
By law, the cabinet must approve the budget by June 12 and the Knesset must approve it by August 1, or else a new election will be held.