A deficit target of 4.65% for 2013, after the 4.2% deficit in 2012, two years in which the economy was close to full employment, is still high and should be reduced," said Deputy Governor of the Bank of Israel Dr. Karnit Flug in response to today's cabinet decision to raise the deficit target. Flug is Stanley Fischer's choice as his successor.
Flug said, "We must not ease up in our efforts. We must continue to try and reduce the deficit in 2013. We must promise and keep the 3% deficit target for 2014, and must now begin to act to create a reasonable budget with a low deficit target for 2015 and subsequent years."
Commenting on S&P's rating downgrade for Israel, Flug said, "We're dealing with a very difficult budget reality, which we must face courageously. The message that the rating company sent us Thursday is that we're losing control of the budget. We have known this for a long time, at least since July 2012."
Flug concluded, "We can no longer claim that Israel has been consistently keeping fiscal discipline." She called on the government to create an oversight and control mechanism for the accumulation of future government commitments to ensure that they are consistent with spending caps.
"This matter is even more important to ensure that the conduct, which created the problem which we are now trying to tackle, will not be repeated," she said, adding, "This need is honed in view of the challenge the government will face in the 2015 budget. The commitments for 2015 already exceed the spending caps."
Ministry of Finance officials have long been demanding the creation of a commitments oversight mechanism, after the absence of such controls has already resulted in the granting of pay hikes in the past three years to certain groups amounting to NIS 13-15 billion, among other things.
Published by Globes [online], Israel business news - www.globes-online.com - on May 5, 2013
© Copyright of Globes Publisher Itonut (1983) Ltd. 2013