Israel's 2014 budget will be able to absorb the costs incurred during the month-long Gaza conflict and there will be no need to raise taxes, Finance Minister Yair Lapid said on Thursday.
"We won't raise taxes," Lapid told reporters. "The economy needs growth mechanisms, not weights on citizens' shoulders. There's no reason to raise taxes at this time."
Finance Minister Yair Lapid (צילום: רויטרס)
He said the Finance Ministry was not yet done calculating the cost of the Gaza operation to the state, and that it would take a week or two before the government could determine the total impact of the conflict on the economy - both in terms of military spending and damage to the business sector - but that there was room to cover the cost in this year's budget.
"Israel has a very strong, sustainable economy. We are more than capable to digest this operation into the 2014 budget," Lapid, speaking in English, told Reuters. "Of course it's an expense we didn't expect, but then again, why have a strong economy if not for these occasions in which you have to react to the unexpected."
The direct damage to infrastructure and property currently stands on some NIS 50 billion and the indirect damage to businesses for damages in income and loss of work hours is somewhere between NIS 750 million to NIS 1 billion.
The Finance Ministry received an initial draft of the defense establishment's calculations of its expenses and was now busy checking and corroborating the data.
"We'll have a dialogue with them, even if we accept their demands as they are. The Israeli economy knows how to handle this. This is a negligible percent of the outcome," he said on the defense establishment's budgetary demands.
The Finance Ministry was set to submit its 2015 budget proposal in the coming month. At this stage it appears that the budget proposal would not include tax hikes, but would necessitate raising the deficit target to 3% or near that (compared to less than 2.6% running before the operation) and nearly NIS 5 billion slashed from government expenses.
"This means we have room below the target for unexpected expenses," he said.
Cutbacks on such a large scale usually require minimizing the defense establishment's expenses. Even before the operation, the Finance Ministry was readying for a long battle with the Defense Ministry on cutting the defense budget. Now it seems the Finance Ministry has lost points in this battle and passing the budget would now be even more difficult, because it would be harder to convince public opinion of the need for defense cuts.
"I won't pretend the operation doesn't restart the debate on our priorities. The defense establishment has demands it didn't have before, but countries are not run based on the current mood," Lapid said. "In any case, we have no intention to cut back on terror tunnel handling and the protection of Israeli communities. The things you could cut in the defense budget are in completely different areas."
Another challenge the Finance Ministry will have to face on the 2015 budget is growing signs of a general slowdown in the market. The growth rate is on the decline, the Bank of Israel's interest has been lowered back to a level of 0.5%, inflation failed to meet the target set by the government and the rate of unemployment has grown over the past month.
The Finance Ministry's budget proposal would have to take these things into account as well, and create conditions to turn around this negative trend.
The finance minister noted that, "if you want to know how the market will deal with the consequences of the operation, look at previous operations. After the Second Lebanon War, after Operation Cast Lead and after Operation Pillar of Defense there was always an immediate and strong spike in the outcome and in market activity. The Israeli economy is vibrant and strong and has good foundations, and we have every reason to believe we can handle the consequences of this operation."
Finance Ministry Director-General Yael Andorn said that alongside dealing with compensation bids, the ministry is working with the Tourism Ministry on a plan for the recovery of Israel's tourist industry, which suffered a hard blow during the operation.
Lapid called on the Israeli public to take a vacation in Israel: "We have a beautiful country with wonderful tourism services. Instead of giving the money to Turkey, it could aid Israeli businesses and create jobs for Israelis."