Minister of Finance Yair Lapid and ministry officials today began presenting their economic plan for 2013-2014 to Prime Minister Benjamin Netanyahu and his staff, including Prime Minister's Office director-general Harel Locker and Prof. Eugene Kandel, chairman of the National Economic Council.
Outgoing Governor of the Bank of Israel Stanley Fischer removed any lingering doubts about his intention to leave and the identity of the person he would like to see replace him: for the first time since 2005, Fischer was absent from the vital discussion on the budget, and sent in his stead Dr. Karnit Flug, his deputy, and a leading candidate for the post of governor of the central bank.
At the end of the meeting, Lapid's staff issued a laconic announcement stating that "the working person will be at the center" of economic planning for the next two years. Among the measures presented at the meeting, according to the statement, were higher taxes on luxury cars and homes and other luxury items. These are mainly populist steps, which altogether will yield at most some NIS 500 million, a tenth of the amount that needs to be found in order to cover the excess fiscal deficit.
The plan includes spending cuts of NIS 21 billion, NIS 13 billion from the budget base for 2013, and NIS 7 billion from the budget base for 2014. The draft economic plan formulated by the Ministry of Finance Budgets Division also includes tax hikes.
The three main areas for spending cuts, as reported by "Globes" last August, are the defense budget, child allowances, and pay rises promised to various unions and the Histadrut (General Federation of Labor in Israel).
Alongside these thematic cuts, every item in the NIS 340 billion budget will be reviewed. "The tough budget represents an opportunity for us to examine every individual budget and the pockets of fat," a senior Ministry of Finance official said. So NIS 10 billion will come from "streamlining", the postponement or halting of initiatives that do not promote the aims of growth or narrowing social gaps, cut backs in items that have swollen, postponement of infrastructure and public transport projects, and transfer of transport projects to the private sector (through BOT or PFI). "We have already found NIS 10 billion," the official said, adding that NIS 2 billion could be saved just from deferral of projects and transfers to BOT.
The fiscal deficit target is 3% of GDP in 2013, and 2.75% in 2014. Only when the budget plans are finalized will the full picture become clear, but the Finance Ministry already admits that there will still be gaps in the next two years between the deficit and the target. The ministry rules out spending cuts beyond NIS 21 billion, so the remaining option is to raise tax rates, which it does not favor, or to expand the tax base by abolishing exemptions and distortions.
For the time being, the Histadrut chooses not to respond to the discussion taking place, but rather to wait for a further meeting between Lapid and Histadrut chairman Ofer Eini, since Lapid has promised that for the time being the plans are proposals being examined and not decisions.
Published by Globes [online], Israel business news - www.globes-online.com - on April 11, 2013
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