Leading Israeli capital market economists predict that the Ministry of Finance will again miss its deficit target in 2013. According to the latest surveys, most of the chief economists at the main financial institutions believe that the budget deficit in 2013 will reach at least 3.5% of GDP, and some predict a deficit of 4-4.5%.
These forecasts assume that the next government will immediately cut spending by NIS 12 billion, otherwise the deficit will exceed 5% of GDP, which will cause a financial crisis.
As for the 2012 deficit, economists agree that the Ministry of Finance will miss its target. The deficit for the 12 months through October is 4% of GDP, more than double the ministry's original 2% target, and well above its revised target of 3%. In addition, the tax shortfall in January-October is NIS 2.2 billion compared with the ministry's target of NIS 221 billion. Most of the shortfall in 2012 is because of the gross miscalculation in the original tax revenues projection of NIS 232 billion, which was made in late 2010 as part of the biennial budget. This mistake resulted in tax hikes (the fiscal package), which the Knesset passed a few months ago.
If the economists' forecasts materialize, the Ministry of Finance will have missed its deficit target for the third consecutive year. The 2011 deficit was 3.3% of GDP, compared with the target of 2.9%; the 2012 deficit is projected to be at least 4% of GDP, compared with a 3% target; and the 2013 deficit is projected to be at least 3.5% of GDP, compared with a 3% target. It should be noted that we are talking about years with an annual average of 3% GDP growth, not years of economic crisis.
Published by Globes [online], Israel business news - www.globes-online.com - on November 12, 2012
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