Cabinet to consider budget as groups claw for changes

Chief economist at IBI Investment House says budget was unlikely to hit its 3.4% deficit target.

Yair Lapid
The cabinet is considering Finance Minister Yair Lapid’s proposal for the 2015 state budget on Tuesday, as interest groups and politicians scurry to insert changes.
As previously announced, the NIS 328 billion budget set a deficit target of 3.4 percent. In concert with Lapid’s promises, taxes are not to rise. In accordance with pre-approved plans, budgets for education increases NIS 1.8b., which goes toward extending the school year for first – through fourth-graders, moving toward free education for three- and four-year-olds, and adding food security.
Health spending is to rise NIS 2.8b., including a real increase of NIS 300m. in the health basket, NIS 145m. for extra hospital beds and NIS 285m. for mental health services. The Public Security Ministry looks to get an additional billion shekels to put toward policing and the Welfare and Social Services Ministry is to gain NIS 1.4b., including extra funds for Holocaust survivors.
“This budget has an emphasis on growth generators. In this budget we invested in strengthening and encouraging the business sector, which turns the wheels of the economy,” Lapid said on Monday.
The budget has its fair share of critics, however.
Rafi Gozlan, chief economist at Israel Brokerage and Investments, said the budget’s numbers were unconvincing, and that it was unlikely to hit its 3.4% deficit target – a target the Bank of Israel thinks is already too high.
“Without significant changes in the 2015 budget, the deficit will reach 4%. It seems that the budget does not have a margin of safety against negative shocks, so that negative developments may lead to fiscal adjustments [cuts or tax increases] at a less convenient time for the economy.”
Labor MK Eitan Cabel blasted the budget’s allotment for welfare, saying it was ignoring the findings of the Elalouf Committee to Reduce Poverty in Israel, which would cost about NIS 7b.
“Less than half the sum that the committee recommended is budgeted, yet even the majority of this budget is taken at the expense of existing resources,” Cabel said. “This is a classic Israbluff: They are hardly adding a penny to the fight on poverty, but they are taking money from one pocket and transferring it to another, and declaring the problem solved.”
Tourism Minister Uzi Landau protested new taxes on medical tourism, saying that it was “slaughtering the goose that lays the golden eggs.”
According to Landau, hospitals and small businesses benefit from the 60,000 tourists who come to the country for medical treatment each year. Adding a 15% tax plus the 18% value-added tax would make Israel a far less attractive option for medical tourism, he said.
“If you raise the price by 35%, the tourists will stop coming,” he said.
A left-leaning group, aptly names “Leftwards,” criticized Lapid for giving the government less than the usual week to review his proposal. Lapid unveiled the budget plan last Wednesday evening.
Lapid got several backers from the business community on board with his plan on Sunday, announcing two new funds to investing in medium-sized businesses alongside several business leaders. The funds, which will have private and institutional donors as well, will select companies over the course of four years, and remain open for 10.
Zvi Oren, who heads the Manufacturers Association gave Lapid solid backing, saying, “the finance minister did right by choosing not to raise taxes, and encouraging investment in the economy’s growth generators.”
Ehud Rassabi, head of Lahav, the Independent Business Association, and the president of the Farmers Association, Dov Amitai, were on hand to offer support.
Yet one of the central business groups, the Federation of Israeli Chambers of Commerce, was less enthused about the plan, offering up a series of recommendations for how to adjust the budget and economic plan.
The government, it argued, would do better to update the law on encouraging capital investments to provide benefits for job creation, and offer further benefits to foreign corporations. The 18% exemption on fruits and vegetables could be partially lifted, setting the tax at 6% to bring in more revenue. It could boost revenue by lowering taxes on dividend withdrawals, the FICC argued.