The battle over the 2005 state budget is warming up. Today, Ministry of Finance budget director Kobi Haber convened the forum of government ministry directors general, chaired by Prime Minister's Office director-general Ilan Cohen, for a preparatory meeting in advance of the government's discussions on the budget, which will start on July 11.
Prime Minister Ariel Sharon has already said he wishes to see greater involvement by ministry directors general in constructing the budget and making budget decisions. The government may give directors general a freer hand than in the past in carrying out decisions.
Haber presented an initial macro survey of the budget and the state of the economy, and procedures and principles for making the budget more transparent.
The government is due to conduct just three discussion on the budget this year, in an accelerated procedure. On July 11, it is due to approve the growth estimates that will be used to set the budget framework and fiscal deficit for 2005. The remaining budget discussions are scheduled for July 25 and August 15.
It is estimated that, in order to meet the targets of a fiscal deficit of 3% of GDP and expenditure growth of no more than 1%, the budget will be cut by 5-7 billion for 2005. About a third of the cut will be from the defense budget.
It is not yet clear whether the cost of withdrawing the army from Gaza, estimated at NIS 1 billion, and the cost of evacuating civilians from there, estimated at NIS 3 billion, will be included in the state budget or will be channeled to a special extra-budgetary expense item. It all depends on how much special aid Israel receives from the US for the disengagement plan.
There will be no further welfare cuts this year, and old age pensions will in fact rise by NIS 200-400 per month. Abolition of exemptions and duplicate welfare allowances, as well as incentives to go out to work, are expected.
The reduction of the rate of VAT by a further 1% to 16%, and other reductions in corporate taxation and in income tax for those on low wages, will apparently be deferred until 2006, in accordance with government tax receipts.
Despite the expected slowdown in tax revenues in the second half of the year, the government will manage to meet this year's fiscal deficit target of 4% of GDP, and to bring the deficit down to 3% of GDP in 2005, assuming that the economy starts to fulfill its growth potential, estimated at 4-4.5%, from next year.
Published by Globes [online] - www.globes.co.il - on June 29, 2004