The 2013 budget deficit will be almost 4% of GDP, not the 3% target, warn top Ministry of Finance officials. The deficit target will therefore be raised to 4%.
Minister of Finance Yair Lapid met Governor of the Bank of Israel Prof. Stanley Fischer late last week and early this week to reach agreement on fiscal targets for the next two years. After the last meeting, a Ministry of Finance source told "Globes", "Nothing was closed."
The original deficit target for 2013 was 1.5% of GDP under the two-year budget 2011-12, but Prime Minister Benjamin Netanyahu and former Minister of Finance Yuval Steinitz doubled the target to 3% late last year, when it became clear that they had lost control of it. Now, Netanyahu and Lapid have decided to raise the target again, to 4% of GDP, or NIS 40 billion.
Top Ministry of Finance officials said that, due to technical reasons (the transition budget), it is not possible to meet the 3% deficit target, because the 2013-14 budget will only be passed in mid-2013. Even if the government passes a NIS 15 billion budget cut, which the ministry wants to meet the 3% deficit target, less than half the cut will come into effect this year, because it is not possible to raise VAT, income, and other taxes, and retroactively cancel exemptions. Measures, such as reducing the child's allowance will not yield their full effect in 2013.
Until the budget is passed, the 2013 budget is an automatic monthly budget of one-twelfth of the 2012 budget, which in practice means an austerity budget with no budget increase in real terms. However, expenditures will soar when the budget is passed, boosting the deficit.
The Ministry of Finance warns that the fiscal package must be approved as soon as possible as part of the annual budget, otherwise fiscal credibility will be damaged, as one top official put it. He added, "Exceeding the deficit target of 3% of GDP must be for technical reasons, not because of an inability to pass the fiscal package."
The Ministry of Finance has not yet decided on the final deficit target for 2013, but sources at the ministry drew attention to the budget performance in March, when the 12-month deficit was 4.5% of GDP. "This was a snapshot, resembling the final figure," said a top official.
The big question is the deficit target for 2014, for which no technical problem applies. On this point, there is disagreement between Lapid and Fischer and his colleagues, who insist that the target must not exceed 3% of GDP. The Ministry of Finance prefers a more flexible target of 3.5%. The argument was suspended for Fischer's trip to attend an IMF conference, but will resume upon his return next week. The 2014 deficit target has already been raised from 1% of GDP to 2.75%, and it is headed higher.
Published by Globes [online], Israel business news - www.globes-online.com - on April 17, 2013
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