Cabinet approves doubling budget deficit target

The cabinet decided that the budget deficit target will be 3% of GDP in 2013, up from the previous target of 1.5%.

The cabinet today approved the doubling of the 2013 budget deficit target to 3% of GDP, and revised the deficit reduction goals through 2019, with a target of a 60% deficit-to-GDP in 2020. The new plan does not change the spending caps mandated by the Reduction of Deficit and Limitation of Budgetary Expense Law (5752-1992).

The cabinet decided that the budget deficit target will be 3% of GDP in 2013, up from the previous target of 1.5%. The deficit target will be 2.75% of GDP in 2014, 2% in 2016, and 1.5% from 2019 onwards.

Last week, Prime Minister Benjamin Netanyahu and Minister of Finance Yuval Steinitz decided to double the deficit target to avoid raising taxes by too much. Despite objections by Budget Director Gal Hershkowitz and Governor of the Bank of Israel Prof. Stanley Fischer, who slammed the decision, Netanyahu submitted his decision to the cabinet today, which approved it.

At the start of the cabinet meeting, Netanyahu said, "I would like to explain what we are doing and what we are not doing. What we are not doing is we are not changing the expenditure target. In the end, what the government controls is the expenditure target and that we are sticking to scrupulously, as we have always done."

Netanyahu added, "We are adjusting the deficit target in relation to revenue to the 'Maastricht target', this is the target, the European standard of 3%. It seems to me that in Europe, Germany is perhaps the only country that is under this, that most countries, not all, are over this. We will be there.

"This requires us to take actions that are not simple, we will need to do a series of things, also vis-à-vis taxation, in order to meet this target. But I did not want… to increase the tax burden too much. When you increase the tax burden, you depress growth. And when you depress growth, you do two things. You increase unemployment and - in the end - you increase the deficit."

Netanyahu concluded, "We will still need to make taxation adjustments - this means that we will need to raise certain taxes. And in order to meet the expenditure target, we will need to do other things and we will do so, and we will meet both the expenditure target and the deficit target. And in the end, this is how we will be tested and we will be successful. I have no doubts."

Published by Globes [online], Israel business news - www.globes-online.com - on July 1, 2012

© Copyright of Globes Publisher Itonut (1983) Ltd. 2012

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