Photo: Gil Yohanan
Finance Minister Lapid. Backtracked from suggested deficit of 4.9% following criticism
Photo: Gil Yohanan

Cabinet okays looser 2013 deficit target

Government to target deficit of 4.65% of GDP, allowing delay in most painful planned spending cuts until next year

Israel's cabinet on Sunday approved a plan to raise the 2013 budget deficit target, allowing the government to delay the most painful planned spending cuts until next year, in a move that drove up government bond yields.


The government will target a deficit of 4.65% of gross domestic product in 2013, or about NIS 47 billion ($13 billion), well above the 3% proposed by the former government.


Finance Minister Yair Lapid had initially suggested a target of 4.9% for this year but backtracked after heavy criticism from fiscal conservatives. The deficit target will drop to 3% of GDP in 2014, higher than the originally targeted 2.75%.


Government bond prices slid as much as 1.3%, pushing the benchmark 10-year yield up 10 basis points, as investors questioned the government's ability to stick to its fiscal targets.


Deputy Bank of Israel Governor Karnit Flug told cabinet ministers ahead of the vote that the target for this year was too high, but that the effort to trim it reflected the government's commitment to addressing its fiscal problems.


"We can no longer claim that Israel consistently maintains fiscal discipline," Flug said, in comments provided by the central bank as the cabinet meeting was closed to media.


But Flug, considered a top candidate to replace Bank of Israel Governor Stanley Fischer when he steps down in June, also welcomed the move to keep the 2014 deficit to 3% of GDP.


"We need to continue to try to reduce the 2013 deficit, we need to ensure that we meet a 3% deficit in 2014, and we need to start now to act to create an adequate budget - with a lower deficit - starting in 2015."


'Fiscal slippage'

Standard & Poor's cut Israel's local currency sovereign credit rating to A-plus from AA-minus last Thursday citing "recent fiscal slippage," while it affirmed the foreign currency rating at A-plus. The outlook is stable.


Indecision on how to cut spending and rein in the deficit brought down the previous government, forcing an election in January that catapulted the centrist Lapid into Prime Minister Benjamin Netanyahu's right-leaning coalition government.


Lapid had initially proposed introducing tax hikes and spending cuts over 2013 and 2014 but said last week that scope for reform was limited this year since the 2013 budget would be approved by parliament only at the end of July, with the deficit already heading towards 5%.


Israel's central bank has warned that a widening budget gap will lead to higher interest rates.


Analysts blame Netanyahu's previous government for Israel's fiscal woes since it spent well beyond its means while underestimating tax revenue.



פרסום ראשון: 05.06.13, 07:23
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