The failure to manage Israel's fiscal policy has emerged from the meeting rooms into the public arena, exactly one week before the elections. Minister of Finance Yuval Steinitz and top Ministry of Finance officials are exchanging recriminations, following the ministry's announcement that the 2012 budget deficit was more than double the target set in the 2010 biennial budget, despite a year of decent economic growth.
Yesterday, Steinitz attacked officials of his own ministry who the day before told "Globes", anonymously, that NIS 4-5 billion would have to be raised in new taxes, and that promises by Steinitz and Prime Minister Benjamin Netanyahu that there was no need to raise taxes were divorced from reality. Economic policy in the State of Israel is set by the prime minister and the minister of finance, and not by officials who give anonymous briefings," said Steinitz in a statement.
Minutes after the press release, Ministry of Finance director general Doron Cohen and Budget Director Gal Hershkowitz, held a telephone press conference, in which they reiterated their commitment to meet the spending target, which will require a NIS 15 billion cut in the 2013 budget, and to meet the deficit target of 3% of GDP, even if this necessitates tax hikes.
"We will not promise not to raise taxes. A package was already submitted last year, and the focus is now on dealing with the spending side," said Cohen. He outlined the difficulties the Ministry of Finance officials were facing. "We are trying to stay as far as possible away from political issues, but this is an election period, and it isn't always possible to draw the line between politics and economics. We remain loyal to our principles."
Hershkowitz said, "There is broad agreement among all the parties that a policy of growth is impossible with a high structural deficit. A structural deficit must not be created in the 2013-14 budget. At the end of the day, minimal tax measures may be needed. Taxes are bad for growth. No one says that taxes are good for growth. But a structural deficit is worse for growth. Missing the deficit target hurts growth the most. The deficit target is critical. There is no objective at the Ministry of Finance to raise taxes. Raising taxes is the least bad way to maintain the deficit target."
Hershkowitz concluded, "If we're talking about a structural deficit that isn't affected by the business cycle, we must deal with it and act."
Asked what he would be prepared to do to prevent a deficit, Hershkowitz said without equivocation, "We'll do everything on both the spending side and the revenues side, and both if we have to. We'll take all the measures needed to meet two targets: spending and the deficit."
As for the need to cut the budget by NIS 14-15 billion, Cohen said, "The decision on priorities is political."
Asked whether the Ministry of Finance was planning to raise the spending cap to prevent such a large budget cut, Cohen replied, "One political party is talking about this (the Labor Party - A.F.), so I do not want to elaborate on this matter. But our professional position is not to raise the spending cap. We must act responsibly. If growth is low in the long term, we can consider increasing expenditures. We're not recommending this for the moment. The current spending target is definitely realistic at the current level of growth."
Responding to charges by former Accountant General Shuki Oren that the deficit was the price paid for the weakness of the Ministry of Finance's leadership, Cohen said, "We're seeing an unprecedented attack against us, and we're being attributed to remarks said in our names. I will not respond to slander. The Ministry of Finance has an outstanding professional staff. We have nothing to be ashamed of against those who speak openly and those who speak anonymously and make irresponsible remarks."
Hershkowitz said, "The weak leadership is the one which prevented the spending cap from being breached, when everyone said that we should breach it. The weak leadership is the one which, a month before the elections, drew up a NIS 14 billion tax package. Is this weakness?"
Cohen and Hershkowitz reiterated that the 2012 deficit did not surprise the ministry. "It wasn’t a surprise, and the deficit is no different from what we foresaw in November and in our forecasts. Our policy conforms with this deviation. We updated our forecasts and undertook the necessary policy measures," said Cohen.
Published by Globes [online], Israel business news - www.globes-online.com - on January 16, 2013
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