"The cost of Operation Protective Edge will be fully paid in 2014. The Ministry of Defense's demands for 2015 must fit in with the public's other needs in the annual budget framework," says Ministry of Finance director general Yael Andorn in a "Globes" interview, in which she speaks about the ability to meet the cost of the war this year, preparation of a growth-oriented budget for 2015, and her wish to avoid levying more taxes on the public.
"Globes": How is preparation of the budget going?
Andorn: "The budget and the economic plan for 2015 were prepared before Operation Protective Edge, and were revised later, following the second quarter economic indicators and the fighting in Gaza. We are handling the cost of the fighting and its actual current spending in the 2014 budget. NIS 600 million has already been transferred to the Defense Ministry. Aid for communities that were hit during the fighting is coming from a property tax fund, and in a meeting with Prime Minister Benjamin Netanyahu this week, a 2% across-the-board cut in ministerial budgets was decided on, and this will be presented to the cabinet on Sunday."
What about the 2015 budget, especially the defense budget?
"The figures for the 2015 budget were also presented to the prime minister on Tuesday this week. A distinction should be made between money actually spent for the operation in 2014 and the 2015 defense budget supplement. The Finance Ministry's job is to continue promoting reforms needed by the economy in order to increase growth, while making sure that the spending framework established is not breached, meaning an NIS 8 billion limit in the total increase in spending by government ministries above what was planned."
But a war did take place.
"Where current defense spending is concerned, a distinction should be made between spending needed for the fighting and other spending and structural changes discussed by the Locker Committee. In our opinion, the additional money needed by the Defense Ministry should not be imposed on the public in 2015. It isn't right that beyond the economic effects of the operation in 2014, it should also affect the state budget in 2015."
There will be no breach of the frameworks established?
"If we stick to the spending that has been decided, i.e. a budget supplement of only NIS 8 billion in 2015, we can remain within the established framework. What is particularly important, now more than ever, is to persist with reforms that will boost economic growth to create a growth-oriented budget.
"Some examples of this are support for encouragement of participation in the labor market through increased construction and sharing in the expenses of day care payments, encouragement of capital investment through grants and the Law for the Encouragement of Capital Investment, expediting the reforms for reducing the cost of living, and increasing food imports, such as meat, milk, and other items."
In recent days, there has been a dispute about the budget deficit between Governor of the Bank of Israel Karnit Flug and Minister of Finance Yair Lapid.
"It's important to maintain the deficit framework. In our opinion, if we can stick to the spending that has been decided, we can maintain a 3% budget deficit environment next year. In any case, the prime minister and the finance minister will decide the framework in the next few days, and things will be submitted to the government ministers on time, before the cabinet discussion."
Why are you opposed in principle to raising taxes? The finance minister is even strongly opposed to eliminating tax exemptions.
If we stick to a 3% deficit framework, there is no room and no need to levy taxes. I don't think it's right to impose more taxes on the public in order to finance the costs required by the Defense Ministry. It's a question of priorities - defense is important, but it should not be at the expense of a civilian agenda or taxes, especially at a time when the economy is slowing somewhat."
That's not as easy as you make it seem.
"It's a complicated situation. In principle, there are three variables: total spending, how much of that spending goes for defense, and the amount of tax receipts during the year - the deficit is derived from them. The decisions to be made aren't simple. We have to make sure that they fit into the frameworks that have been determined."
Published by Globes [online], Israel business news - www.globes-online.com - on August 28, 2014
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