BOI: More Taxes, Less Spending


The Bank of Israel issued its assessment of the economic policies of the Netanyahu-Lapid government on Monday, warning that higher taxes and lower public spending will be necessary to salvage the situation.

“In order to meet the deficit target for 2015, a total of about 18 billion shekels in fiscal measures — reducing expenditures as well as steps to increase revenues — will be required,” the Bank of Israel said.

Labor MK Shelly Yachimovich said on Monday night that the BOI report identifying the 18 billion shekel hole was “a huge slap in the face” to the government of Binyamin Netanyahu and Yair Lapid.

What that means, Yachimovich said, is that “the middle class dream of Netanyahu and Lapid has evaporated. Already many Israeli small businesses are empty of customers because people do not have money to buy as growth slows. Finance Minister Lapid’s promises of a rosy future are dissipating in the face of economic failure.

“It is the poor and the middle class who will pay for the mistakes of this government,” Yachimovich said. “They must pay for health and education from their pockets, while the ‘tycoons’ make out like bandits, with huge government gifts. The gap between promises made by politicians and the sad reality has never been greater,” she concluded.

The Bank of Israel said, “Assuming that the budget is fully spent, and based on updated macroeconomic projections, the expected deficit for 2014 is close to the target set by the government, 3% of GDP, and the ratio of public debt to GDP is not expected to change significantly this year. Tax revenues are expected to rise by about 5.5-6% in real terms, compared with 2013, due to a large extent to the increase in tax rates in the middle of 2013.”

“With that, the many changes that have been made since the middle of 2012 in tax rates and tax regulations, and the unusually low global interest rate environment which encourages financial transactions, some of which generate considerable tax revenues, increase the volatility of tax revenues and the uncertainty regarding their short-term development.”

The Bank of Israel concluded, “Meeting the deficit targets will allow the government to gradually reduce the debt to GDP ratio to about 60% in 2020. However, meeting the expenditure ceiling without measures to increase revenues (including in 2015) will keep the debt to GDP ratio in coming years at its current level, in particular in a case in which no price adjustment is made in 2015.”