Amid reports and rumors of heavy budget cuts, Finance Minister Yair Lapid was said on Sunday to be weighing raising Israel’s deficit target in order to lessen the cuts, Globes reported.
If he does so, it would put Lapid at odds with Bank of Israel Governor Stanley Fischer’s assessment that curbing the deficit must be a national priority.
Earlier in the month, Fischer warned that failure to bring the deficit down would cause it to soar as high as 95 percent of GDP by the end of the decade, instead of easing it down from its 2012 level of 73 percent to a sustainable 60 percent. Israel, Fischer noted, pays a high-risk premium on its debt, meaning that failure to reduce the debt would be very costly in the long-run.
“The main problem in the Israeli economy is the budget,” Fischer said at the time.
Even after the government finds some NIS 13 billion in legally mandated cuts, Fischer predicted that the 2013 deficit would overshoot its three percent target by 0.6 percent.
Dudi Reznick, research director of Leumi Capital Markets, predicted Sunday that the annual deficit could end up as high as 4.5%. “The central explanation for the growth of the deficit is the decrease in tax revenues, which is a result of slowed economic growth,” he said.
Lapid’s office declined comment, saying there would be no official comment on the budget until after Lapid and Prime Minister Binyamin Netanyahu agree on a framework. Lapid is expected to meet with Fischer, and then again with Netanyahu later in the week.
Meetings last week with Histadrut Labor Federation Chairman Ofer Eini over NIS 4 billion in potential cuts from public sector wages left the matter unsettled, leaving open the possibility of a wave of labor disputes and strikes, which Lapid would like to avoid.
The only definite news about the upcoming budget that Lapid has made public was an increase in luxury goods taxes, though that would only account for a fraction of the deficit.
Also on Sunday, Lapid was designated by the Knesset to head the Housing Committee, Army Radio reported. He will be joined on the committee by several other Knesset MKs, including Energy and Water Minister Silvan Shalom and Defense Minister Moshe Yaalon.