Governor of the Bank of Israel Karnit Flug met with Prime Minister Benjamin Netanyahu to discuss the introduction of a two-year budget in Israel. Netanyahu has been pushing for such a budget, and it appears that Minister of Finance Moshe Kahlon will have no choice other than to go along with it.
Flug expressed no strong opinion on the subject to Netanyahu, saying that it did not matter whether the budget was for one or two years, as long as four important economic points were maintained.
The governor does not believe that a two-year budget will have critical consequences for the Israeli economy. She presented the risks and advantages of such a budget to the prime minister, and left the decision to him, without discussing the constitutional, democratic, and political aspects of a two-year budget.
Flug told the prime minister that it was best "to avoid problems we have seen in the past with a two-year budget, for example the accumulation of long-term liabilities it would difficult to meet later. The numerator (a tool that makes it possible to constantly monitor the government's budget liabilities, A.B.), which has been put into operation, can help verify definitely that long-term liabilities are not being accumulated."
Flug added, "I think that predicting the future is more difficult in the longer term. In particular, if there is a deviation, it can accumulate for a long time, so if you leave a larger reserve in the budget, you can cope with a two-year budget."
In her talk with Netanyahu, Flug also noted that it was important to retain budget flexibility by reducing the number of items in the state budget. A fourth and final point raised by Flug was that it was important for the budget to focus now on the long-term challenges priorities and handling and support for future growth engines.
Published by Globes [online], Israel business news - www.globes-online.com - on May 5, 2016
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