Despite the all-clear sounded by Prime Minister Benjamin Netanyahu and Minister of Finance Yuval Steinitz that the higher than planned budget deficit will not affect Israel's people, there is wall-to-wall agreement that at least NIS 5 billion in new tax hikes are unavoidable in 2013. Last night, Steinitz reiterated that there would be no new taxes.
"In fiscal terms, there is no 2013. There is a 2013-14 budget Since we have not yet set growth forecasts on which to base tax revenues, we do not know whether we will need more taxes in the next two years," a top Ministry of Finance official told "Globes" today. "What is certain is that growth next year will be lower than this year, which means that the pledge of no new taxes is simply irresponsible."
Another senior official was even more outspoken, telling "Globes" that NIS 4-5 billion in tax hikes will be needed in 2013.
A third top Ministry of Finance official said that the ultimate size of the tax hike was unknown, as it depends on revenues from trapped profits and the plan to tighten tax collection, which the Israel Tax Authority estimates will generate NIS 5 billion in revenues. "Some Finance Ministry officials believe that there is a need to raise NIS 4 billion in new taxes, and others are leaning toward NIS 5 billion. It doesn’t really matter, because the difference isn't great," he said.
Top capital market economists doubt that the Ministry of Finance will meet the 2013 deficit target either. Recent polls among the economists indicate that the majority believe that the budget deficit will be at least 3.5% of GDP.
Foreign economists also doubt the Ministry of Finance's ability to meet the deficit target. Two months ago, an S&P analyst told "Globes" that he does not believe that the Israeli government will meet the 2013 deficit target. "We believe that future fiscal policy will help narrow the deficit to 3.3% of GDP," he said.
The OECD, an organization that Steinitz is wont to quote, explicitly says that there is no alternative to tax hikes, even after the deficit targets for 2013 and 2014 were raised to 3% and 2.75% of GDP, respectively, from 1.5% and 1%. In its Economic Outlook for November, the OECD stated, "If public expenditure rises in line with the legislated ceiling and revenue-raising measures yield the expected results, then the central government deficit should be on target in 2013, but fall short in 2014, implying a need for further consolidation."
The Ministry of Finance said in response, "The government identified the downward trend in tax collection back in late 2011, and it therefore updated the deficit target in January 2012. As the trend continued, the government raised taxes in mid-2012. This year will require an addition budget cut to meet the spending target."
Published by Globes [online], Israel business news - www.globes-online.com - on January 14, 2013
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