Israel will finish 2021 with a budget deficit of about 7% and get that down to 4.1% in 2022, according to the Finance Ministry’s numerator published on Sunday.
GDP for 2021 will grow by 5.1%, the report forecasted.
The numerator outlines all expected spending and income planned for the upcoming budget. According to the calculations presented, planned expenses will be NIS 450.1 billion in 2022 and NIS 473.2b. in 2023. For 2024 and 2025 the expenses will be NIS 489.8b. and NIS 504.3b., respectively.
The 2022 deficit would still be more than twice the government’s pre-coronavirus target of 2%. Getting it down to a more realistic coronavirus level for the pandemic, 3.7%, would require out NIS 25.8b. in spending, the Finance Ministry said.
A new draft of the Economic Arrangements Law published over the weekend leaves out the government’s plan for regulatory reform, kashrut reform and increases in property taxes that had been announced previously.
A 271-page draft of the legislation was released for public comment before it is presented to the cabinet on August 1.
With every state budget, a new Economic Arrangements Law is passed to incorporate government bills and legislative amendments that are needed in order for the government to fulfill its economic policy. Israel has not had a budget for more than three years and the new legislation is possibly the most ambitious and complex document of its type ever put forward.
The public draft leaves out several items that Finance Minister Avigdor Liberman and others had previously signaled would be central to the budget. Liberman has said that the government’s extremely short time frame for approving the budget would necessarily mean that certain priorities would have to wait until the next budget in 2023.
Most noticeable among these is a government plan to reduce excessive regulation and bureaucracy in government offices. This was jointly presented three weeks ago by Prime Minister Naftali Bennett, Liberman and Justice Minister Gideon Sa’ar, with the promise that this would save the economy between NIS 7-8b. a year. It seems that parts of this project, which would create a new government regulatory authority to ensure that laws comply with “smart” governance standards, were not acceptable. An updated version may be released for public comment in the coming days.
A wide-reaching set of reforms to the kashrut market were also left out of the budget law. The plan, which would effectively end the Chief Rabbinate’s long-held monopoly over the kashrut-supervision industry, is a political hot potato, and it seems that Bennett and others are still deciding how to approach it.
A separate plan to raise residential property taxes and lower those for businesses was also conspicuously absent from the legislation. It seems that any plan to increase taxes amidst the coronavirus crisis will be too difficult a political battle. Liberman has repeatedly said that he will not increase taxes, but in his mind, arnona is a municipal matter, not a tax.
Among the items that were included in the budget as expected are import reforms designed to lower the cost of living; a gradual plan to raise the retirement age for women from 62 to 65; a plan to convert tens of millions of square meters of unused office space into residences to create new housing options; and taxes on disposable tableware and utensils, as well as soft drinks.
A plan to lower the prices of fruits, vegetables and eggs, promoting imports to boost competition and increase the range of products available to the Israeli consumer is still in the Economic Arrangements Law, despite aggressive opposition from thousands of local growers who fear that the plan will destroy their livelihoods. That plan could save consumers some NIS 2.7b. a year, or NIS 840 per household, once implemented, Liberman said.
When the law is presented to the cabinet on August 1, there will be tremendous pressure to approve it as quickly as possible. Once that is done, the bill will move to the Knesset to be approved before Rosh Hashanah. A final approval of the state budget and its accompanying laws is required by November 4 or the government will be automatically dissolved and a snap election will be called.
Separately, the Finance Ministry said on Sunday it approved a NIS 60 million economic assistance package for hotels hurt by the latest round of travel restrictions. It has yet to reach an agreement on a suitable safety net for the aviation industry and tourism industry workers.
With no incoming tourists and no more government support, tour guides say they feel abandoned by the government.
“The reality is that the hotels received NIS 400m., the travel agents NIS 45m. on top of what they had previously and now another NIS 60m. Tour guides got nothing,” said Elena Drubachevsky, head of a group of tour guides protesting the government decision. “Our few benefits were cut completely from July 1. We feel we have been maliciously ignored by the government, which is keeping any form of supervised tourism out of the country. We need, at the very least, the same type of support the hotel industry and tourism agencies are receiving.”