The minister of finance who prepares the 2019-2020 state budget will have to close a NIS 21.7 billion fiscal gap, according to the updated multi-year budget program that will be presented to the government today. The consequence will be cuts to the budgets of the civilian ministries (Health, Education, Welfare), or an across-the-board cut in government spending and a tax hike, assuming that the Ministry of Finance does not manage to introduce efficiency measures and that the Ministry of Defense does not agree to a reopening of the multi-year defense budget that was promised to it in the agreement between Minister of Finance Moshe Kahlon and then-Minister of Defense Moshe Ya'alon.
The report will be presented to the government in accordance with the "numerator law" of 2015 that is intended to ensure that the government will not make commitments to future expenditure without coverage from the budget or that will breach the budget framework.
The budget framework is dictated by two fiscal rules: the expenditure limit and the deficit target. The first rule sets an expenditure ceiling for the government that means that the Ministry of Finance may not raise government spending by more than 2.7% annually. In the last budget, the Ministry of Finance bent the rule and raised its expenditure ceiling by a further 2% for 2019 and 0.7% for 2020. Despite this, the commitments that the government has undertaken already exceed the raised limit, by NIS 3.8 billion in 2019 and by NIS 2.7 billion in 2020.
The Ministry of Finance is trying to present an optimistic picture, saying that "the adjustments required are smaller than have been required in the past, because no budgetary decisions for 2019 onwards have been made with some balancing measure."
The second rule (that has been bent many times in the past) sets out a declining curve for the fiscal deficit target, according to which it should be 2.5% in 2019 and 2.25% in 2020.
According to the forecast presented to the government today, state revenues will have to be increased by NIS 6.4 billion in 2019 and by a further NIS 2.4 billion in 2020 in order for it to meet the deficit targets. Unless such steps are taken, the Ministry of Finance estimates that the fiscal deficit will cross the dangerous 3% line, and will be 3.2% in 2019 and 3.1% in 2020.
Published by Globes [online], Israel business news - www.globes-online.com - on June 11, 2017
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