When Yair Lapid ran for Knesset in the last election, he promised overburdened taxpayers to “find out where the money is.”
Since then, after being appointed Finance Minister by Prime Minister Binyamin Netanyahu, he has imposed drastic cutbacks affecting mostly working and poor Israelis, and in particular the chareidi community and its Torah institutions.
But apparently Lapid did not succeed in locating the main source of the state debt. For on Monday, the Bank of Israel said he will need to find NIS 12 billion in budget cuts and NIS 8 billion more in new taxes in 2015 to hold to the country’s fiscal targets.
In its annual report, released Monday, the central bank said that finding the money will become increasingly difficult: in 2016, the state will need NIS 20B in cuts and NIS 12B in tax increases, 2017 will need NIS 27B in cuts and NIS 13B in tax increases. Because of the nature of the budgetary rules, which limit increased spending, any of those cases could see lower taxes, but only if they are accompanied by greater cuts. The deficit target shrinks from 3% of GDP in 2014 to 2.5% in 2015 and 2% in 2016.
Bank of Israel Governor Dr. Karnit Flug noted that Lapid’s housing VAT exemption, to which she is vigorously opposed, will make the budgetary challenge even greater. If implemented, it will cost an estimated NIS 2 billion a year, probably more as the restrictions on eligibility for the exemption are removed.
The report showed that the price of housing increased 6% in real terms in 2013, bringing overall real growth since 2008 to approximately 60%. On the positive side, if Israel can maintain the increased level of new housing starts it saw in 2013, prices will eventually come down.
The economy grew at 3.3%, a slight slowdown over the previous year, but significantly better than the OECD average of 1.2%, or the .4% economic contraction in the Eurozone. Unemployment remained at a historic low, and the bank characterized the economy “at full employment.” The bank projected growth for 2014 at 3.1%.