"Prime Minister Benjamin Netanyahu is under pressure, but this time it's in a positive direction. The measures published last night are just the tip of the iceberg. To meet the 2013 deficit target, it is necessary to cut NIS 12 billion on the spending side, and to raise revenues by a similar amount," said Psagot Investment House Ltd. macro department manager Ori Greenfeld today, in response to the tax hikes announced yesterday.
The government plans to raise VAT by 1% or more, following a decision by Prime Minister Benjamin Netanyahu and Finance Minister Yuval Steinitz to bring the proposal to the cabinet on Monday. The cabinet will also be asked to make an across-the-board cut for government ministries totaling NIS 700 million.
"There has been a tendency more than once to describe Netanyahu as 'under pressure,'" says Greenfeld. "But sometimes, it is good to be under pressure, especially when the pressure is in the right direction. Netanyahu acted yesterday, following growing pressure in recent weeks, especially by the Bank of Israel, to present fiscal responsibility."
According to Greenfeld, a responsible fiscal policy should be maintained, and Israel's debt-to-GDP ratio should be reduced, "not because of the campaign of fear claiming that, within moments, we'll end up like Greece", but because the interest payments on the government debt are still high.
"This expense is liable to reach 13.5% of total government expenditures this year, and reducing it will allow money to be channeled to other items, such as education and welfare," concludes Greenfeld.
Greenfeld adds, "Assuming that the 2013 budget will not be ready before elections, the government will have to decide whether to continue with the credit line of previous years, and make additional cuts, or risk a rise in bond yields and a rating downgrade."
Published by Globes [online], Israel business news - www.globes-online.com - on July 25, 2012
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