Minister of Finance Yair Lapid dropped a bombshell yesterday evening, when he proposed expanding the fiscal deficit this year to 4.9% of GDP. Lapid seeks to bring the proposal before the cabinet for approval this Sunday. It appears that he raised the subject at his meeting with Governor of the Bank of Israel Stanley Fischer yesterday, and that Fischer does not view the idea positively, to say the least.
If the finance minister's proposal is accepted, the framework for government expenditure will expand by more than NIS 6.5 billion, and the spending cuts in the budget will be reduced by half, from NIS 13 billion as currently planned, to NIS 6.5 billion.
Under Lapid's proposal, the deficit target for 2014 will return to a normal level of 3%, while the spending cuts will climb to NIS 18 billion.
In other words, Lapid wants to let the huge deficit happen this year, because of the short timetable, which makes it difficult impose the required cuts in 2013. He therefore seeks to regard this year's deficit as an outcome, and to look towards 2014, when the cuts and tax hikes will be implemented in full, and the deficit should fall.
According to Ministry of Finance forecasts, if no immediate steps are taken, the deficit will reach 5.5% of GDP this year and 6% next. In order to rein in the deficit, spending cuts totaling NIS 18 billion are required, alongside extra tax revenues of NIS 14 billion.
Published by Globes [online], Israel business news - www.globes-online.com - on May 2, 2013
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