Bank of Israel: Tax hike inevitable

The Bank of Israel estimates that the 2013 budget deficit will reach 5% of GDP, as against a target of 1.5%.

The Bank of Israel estimates that the 2013 budget deficit will reach 5% of GDP - NIS 47 billion - compared with the target of 1.5% of GDP, or NIS 14 billion. Consequently, the Bank of Israel says that a tax hike is inevitable, together with sharp spending cuts, and it is already saying so behind closed doors.

Governor of the Bank of Israel Prof. Stanley Fischer declines to say which taxes should be raised. He told "Globes" last week, "I feel uncomfortable holding this discussion here and now."

The Bank of Israel's especially worrying updated numbers were calculated by one of its top economists, Adi Brender, an expert in public sector analysis. The Bank of Israel adds that, assuming 2.5% GDP growth a year, the 2014 deficit will climb to 5.5% of GDP.

The Bank of Israel attributes part of the 2013 budget blowout to NIS 4.8 billion in increased spending to implement the Trajtenberg Committee recommendations, NIS 5 billion in additional defense spending, and new salary commitments made by the government to doctors, medical residents, teachers, contract workers, and others, as well as the minimum wage hike.

In other words, the budget has already exceeded the current spending cap by NIS 9.8 billion. Moreover, the Bank of Israel estimates that Trajtenberg spending will rise to NIS 6.1 billion in 2014, and defense and salary outlays will rise to NIS 5.5 billion, for NIS 11.6 billion in extra expenditures above the spending cap. The Bank of Israel says that inflation, which will result in the spending cap rising by NIS 2.8-3 billion, will reduce the excess spending.

The Ministry of Finance agrees that the 2012 budget deficit will exceed the NIS 18.4 billion target, reaching 3.5% of GDP, or NIS 32.2 billion. But the ministry rejects the Bank of Israel's estimates of a budget blowout, and is trying to avert, or at least delay, decisions on tax hikes.

Published by Globes [online], Israel business news - www.globes-online.com - on April 10, 2012

© Copyright of Globes Publisher Itonut (1983) Ltd. 2012

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