Steinitz: No choice but to raise taxes in 2013

Speaking at Caesarea Forum, finance minister denies media reports that decision to raise budget deficit will preclude tax hike.

Finance Minister Yuval Steinitz 370 (photo credit: Marc Israel Sellem)
Finance Minister Yuval Steinitz 370
(photo credit: Marc Israel Sellem)
The 2013 budget will include tax hikes, Finance Minister Yuval Steinitz declared Wednesday, just one day after agreeing to double next year’s budget deficit ceiling to 3 percent of the gross domestic product.
Responding to media reports that the increased deficit target would preclude a tax hike, Steinitz said, “I want to set the record straight: Taxes will be imposed.... I must say this, because our credibility is important to us and [taxation] is a central tool of this government’s policy, particularly in an hour of crisis.”
Steinitz made the comments while addressing the Israel Democracy Institute’s 20th Caesarea Forum at the Dead Sea. The annual event was renamed this year to the Eli Hurvitz Conference on Economy and Society, in memory of the former Teva Pharmaceuticals chairman and CEO who died last year.
On Tuesday, Steinitz and Prime Minister Binyamin Netanyahu announced their decision to increase the 2013 deficit target from 1.5% to 3% – or almost NIS 30 billion.
The two also agreed to set new long-term deficit targets – lowering the deficit to 2% by 2016 and 1.5% by 2019 – and to maintain their original goal of lowering debt-to- GDP ratio to around 60% by 2020.
Steinitz explained at Wednesday’s conference that he and Netanyahu were guided by two equally important factors in making their decision: their desire to reduce the general public’s tax burden as much as possible and their intention not to increase the deficit to unreasonable proportions. He also said that OECD Secretary- General Angel Gurría advised him on the matter during his visit to Israel three weeks ago.
The 2013 budget will be a single-year budget only, in accordance with the government’s policy of producing biennial budgets except for during election years. On Sunday, the cabinet backed Steinitz’s proposal to introduce legislation committing future governments to adhere to the biennial budget format.
On Wednesday, the Knesset Research and Information Center released a report outlining the pros and cons of maintaining the two-year format.
The Knesset Finance Committee commissioned the study.
The report said that the biennial format would help ensure budgetary stability during political crisis, aid government ministries in conducting long-term planning, instill feelings of certainty in market players, enable long-term allocation of planning and management resources, build trust in the business sector and foreign investors and allow for streamlining of infrastructure projects.
On the other hand, the report said, the main problem with a two-year budget is that it increases the difficulty of adapting to changes in the global and domestic economic environment. It added that this also increases the likelihood of making inaccurate forecasts on growth, revenue and expenditure – particularly in the budget’s second year.