Prime Minister Benjamin Netanyahu's decision to move up the Knesset elections is expected to result in the delay of all economic reforms planned until mid 2013.
During the first half of 2013, the State of Israel will operate with a temporary state budget derived from the 2012 budget.
The current government did not approve a budget for 2013, a task which will be handed over to the next government. Until the next government is established and a new budget is formed, the state will operate on a temporary budget equaling a relative part of the current budget.
For example, as the government spending budget for 2012 stands at NIS 286 billion (about $74 billion), until a new budget is passed ministries will operate on a monthly budget of about NIS 24 billion ($6.2 billion) – 1/12 of the previous budget.
All economic activity which does not resemble the activity in the previous year is forbidden during the term of a caretaker government and before the establishment of a new government. As a result, the implementation of a slew of economic reforms – especially concerning housing, transportation, education and welfare – will be postponed.
In addition, budgets will not be approved for new activities planned for 2013 which have yet to be approved.
In light of all this, senior Treasury and Bank of Israel officials have estimated that moving up the elections at the current state of events will cause significant damage to the Israeli economy.
The budget deficit will stand around NIS 30 billion ($7.75 billion) and the government will not be able to reduce by implementing budget cuts or raising taxes – unless such a move is taken in the coming days, before the Knesset agrees on an election date. Naturally, the chances for such a move to be carried out at this time are low.
In addition, as the next budget will only be formed in mid 2013, it is likely to include both the second half of 2013 and 2014 – similar to previous cases in the past.