Governor of the Bank of Israel Stanley Fischer recommends that the government stick to its 3% of GDP budget deficit target for 2006.
Talking to economic reporters in Jerusalem, Fischer said there was room for more budget streamlining. “Everyone thinks that their budget can’t be cut more. I’m in favor of effective budget cuts,” he stated. “It’s very important to meet the planned budget deficit target. In any case, we’ll have to adjust tax and growth forecasts to what’s happening now.”
Fischer disclosed that the Ministry of Finance had shown a desire to cooperate with the Bank of Israel on a range of issues, including the budget deficit. “We’re the government’s economic advisers, and it’s important that we work together, and formulate a joint forecast. We’re currently meeting the 3.9% growth forecast. The Ministry of Finance’s tax plan will contribute to meeting the growth target. Growth in 2006, however, also depends on the policies of the Bank of Israel and the government,” he explained.
Fischer noted that he supported Minister of Finance Benjamin Netanyahu’s idea of boosting growth through tax cuts. He said, “We have to find a balance between cutting taxes and growth at any price, and reducing the ratio of debt to GDP. It’s important that all revenue from privatization should go towards reducing the debt.”
Fischer agreed that Israel had a poverty problem, and that economic gaps had widened in recent years, but he believes that some of the widening is a result of the recession. “If growth continues, the situation of poor people will improve. There’s a need to think about how to reduce poverty. The Minister of Finance’s approach of cutting taxes while boosting growth for poor people is good, and we support it,” he stated.
Concerning his policy on interest rates and inflation, Fischer indicated that the Bank of Israel was now aiming at the middle of the inflation target. “It’s better to be near the middle of the target. I’ll try to reach 2% inflation, but it’s not always possible to score a bulls-eye. We’ll try to make it between 1% and 3%,” he said.
Published by Globes [online] - www.globes.co.il - on June 9, 2005