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Finance Minister Moshe Kahlon.(Photo by: MARC ISRAEL SELLEM)
Kahlon makes opening bid for 2017-18 budget
Each year, as the economy grows and the population changes, the budget plan begins with an 'automatic' starting point that reflects the continuation of current policy and trends.
Finance Minister Moshe Kahlon drew his first line in the sand Monday in the 2017-2018 budget battle, promising to increase spending on infrastructure, health and education.

Speaking at the Netanya Real Estate Forum, Kahlon said the new budget would allocate an additional NIS 2.5 billion for health, NIS 2.5b. more for Transport, and NIS 1.5b. to education.

“These numbers are the minimum, not the maximum. We will put together a serious package for growth and export support, and we are not afraid to think about lowering taxes to encourage growth,” Kahlon said.

Relative to other OECD countries, Israel spends less on its “social” sectors, and moves toward more investment in fields such as education and transport infrastructure are broadly considered constructive.

Kahlon did not specify whether the figures he gave were in relation to the 2016 budget or the “automatic pilot” path of the 2017- 2018 budget, nor did he say whether these goals were for the first or second year of the spending plan. A Kahlon spokesman did not return requests for clarification.

Each year, as the economy grows and the population changes, the budget plan begins with an “automatic” starting point that reflects the continuation of current policy and trends.

The 2016 budget, for example, allocated NIS 29.8b. for health, NIS 15.4b. for transport, and NIS 52.2b. for education, according to Finance Ministry figures. With the economy projected to grow at 2.8% this year, a budget representing the same allocations as shares of GDP in 2017 would already incorporate growth of roughly NIS 0.8b. for health, NIS 0.4b.

for transport, and NIS 1.5b. for education (note: these are back-of-the-envelope calculations, not official budget statistics, which are more complex). In other words, depending on the starting point, Kahlon’s education promise could be restating what is already built in to the budget.

“Like with every budget, money has a prominent feature: there’s never enough of it. There isn’t enough money, but we will deal with it by increasing efficiency and managing the budget well,” Kahlon said in Netanya.

Further complicating things is the fact that the Bank of Israel is pushing for a reduction in deficits. For each of the last several years, Israel has ignored the deficit reduction plan to which it had committed, and set new, higher targets. Each time, the government vowed to stick to a new path going forward. The current budget promised to cut the deficit from 2.9% of GDP to 2.5% in 2017 and 2.25% in 2018.

That said, Israel’s debt burden has hit a record low of 64.9%, leading credit rating agency Fitch to change Israel’s outlook from “stable” to “positive” in April. That situation may give Kahlon flexibility in arguing for a less-stringent deficit reduction plan.

In both 2012 and 2014, coalition disagreements over passing the budget resulted in early elections. Kahlon recently agreed to Prime Minister Benjamin Netanyahu’s demand that the current budget maintain a two-year timeline, in part to reduce the political risk entailed in an extra budget fight.
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