Higher Deficit Ceiling to Reduce Spending Cuts


In an indication of the fluidity of the budget crisis, Minister of Finance Yair Lapid announced Wednesday night his desire to expand the fiscal deficit this year to 4.9% of GDP, The Jerusalem Post reported.

The advantage of such a decision is clear; it would enable the government to ease up on a controversial program of spending cuts, reducing it by half, from 13 billion shekels, as currently planned, to 6.5 billion.

It would give the government more room to maneuver as it faces vehement protest from opposition parties, labor unions and many others that stand to be hurt by such cuts.

Under Lapid’s proposal, however, austerity would only be postponed, not cancelled. The deficit target for 2014 would return to a normal level of 3% while the spending cuts rise to 18 billion as cuts and tax hikes are implemented in full.

Reaction to the proposal appears to be mixed.

Lapid reportedly raised the subject at a meeting with governor of the Bank of Israel Stanley Fischer on Wednesday, and decided to go ahead with it despite the latter’s dissatisfaction.

On the other hand, he won public approval from his Labor party nemesis, Shelly Yachimovich, who declared, “For the first time since taking office, the finance minister has done the right thing. This will slightly limit the austerity measures and the squeezing of the economy and the public,” she said.

Yachimovich added, “We should now urgently create a package of incentives that will stimulate the next wave of growth. The finance minister should not forget the middle class is the economy’s most important growth engine, and anything that harms it — VAT and tax hikes, erosion of its salary, cutting the health and education it receives — harms the economy and country.”

Lapid is slated to bring the proposal before the Cabinet for approval next Sunday.