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Finance Ministry: Deficit to grow to cover for defense spending

As tensions run high between Netanyahu, Lapid over next budget, Finance Minister decides to raise deficit targets instead of raising taxes to fund war, contrary to Netanyahu's position.

The Finance Ministry announced on Sunday it was raising Israel's deficit targets by roughly NIS 7 billion to foot the bill for an increased defense budget. The Defense Ministry for its part seems displeased, and slammed the budget as "unrealistic."

 

 

Finance Minister Lapid and Netanyhau have been at odds as of late over the 2015 budget, with the two clashing over the need to either raise taxes or increase the deficit to cover increased defense spending. While Netanyahu supports the former, Lapid has repeatedly vowed not to hike taxes, and his deputy said Saturday that should Netanyahu push the issue, the party could choose to leave the coalition.

 

Lapid, Netanyahu and BOI governess Prof. Flug  (Photo: Gil Yohanan)
Lapid, Netanyahu and BOI governess Prof. Flug (Photo: Gil Yohanan)

 

The ministry said on Sunday it set a budget deficit target of 3.18 percent of gross domestic product in 2015, higher than an initial aim of 2.5 percent, to accommodate a sharp increase in defense spending. By law, total budgetary spending may only be raised by 8 billion shekels for 2015.

 

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The ministry delivered next year's budget draft to Prime Minister Benjamin Netanyahu after a delay caused by Operation Protective Edge, the 50-day Gaza conflict with Hamas. The conflict put an unexpected stress on the economy, causing a temporary slowdown in growth and raising new demands for additional funds by the IDF.

 

The Bank of Israel has said its 2014 economic growth forecast of 2.9 percent could be hit by as much as half a percentage point by the fighting, which ended on Aug. 26.

 

"We see importance in preserving the spending framework," said Yael Andorn, Director-General of the Finance Ministry, in a statement.

 

"The budget ... reflects the right balances between the budget deficit, demands from the Defense Ministry and the civilian economic agenda," she said, echoing claims made by Lapid Saturday.

 

The ministry did not provide further details of the proposed budget, but it said the framework would not be broken to include new defense spending.

 

A source within the Defense Ministry told Ynet that "the Finance Ministry's proposed budget is completely unrealistic. The ministry is leading a dangerous process which harms our readiness and could lead to serious damage."

 

"In reality there is no additional funds for defense, and the overall budget is actually lower than the 2014 budget." They also claimed it fails to address the additional costs caused by the 50-day conflict.

 

The defense establishment has requested an increase in spending of 11 billion shekels ($3 billion) for next year in order to deal with the danger posed in Gaza, the West Bank as well as the border region with Lebanon and Syria, as well as Iran. It also seeks 9 billion shekels extra for 2014 to cover costs of the Gaza war.

 

The Bank of Israel, in urging fiscal restraint and keeping to a deficit target of no more than 3 percent of GDP, has advocated tax increases to allow for more defense spending, putting the BOI's governess Prof. Karnit Flug at odds with Lapid and ministry officials, who have rejected any tax hikes while economic growth was slowing.

 

"We can reach an understanding regarding the budget," Finance Minister Yair Lapid told Ynet on Saturday ahead of his Sunday meeting with Prime Minister Netanyahu.

 

Elaborating on his claim, Lapid said "one the one hand we need to give the combative forces extra funding, and prepare the IDF for future challenges, but we also need to take into consideration the needs of Israeli citizens and add funding to social issues. Therefore there is no way we can raise taxes and further burden our citizens.

 

"By not raising taxes we make life easier and foster economic growth and help the market," he said.

 

Earlier Saturday, Yair Lapid's deputy and chairman of the Yesh Atid faction, MK Ofer Shelah, said that Prime Minister Benjamin Netanyahu's behavior surrounding the looming 2015 budget could lead Israel to an early election.

 

The budget must be approved by the Knesset by the end of March or new elections will need to be called

 

On Thursday, Netanyahu said the defense budget would be raised but he would not let the country's credit rating fall through excessive spending.

 

On the backdrop of tensions between the two over the budget, the details of which have yet to be published, the government's weekly meeting Sunday has been canceled, for the third week in a row. Instead, Lapid and Netanyahu will meet Sunday to try and reach a compromise.

 

Israel posted a budget deficit of 3.2 percent of GDP in 2013 and is expected to meet or slightly breach a target of 3 percent in 2014.

 

Reuters and Moran Azualy contributed to this report

 

 

 


פרסום ראשון: 09.14.14, 15:08
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