The IMF has criticized the Netanyahu government over its position regarding the deficit target and spending cap. The report, published today, says that the deficit target misses and has to be revised too often, and that the spending cap also has to be changed too many times.
The IMF spotted the tricks that Israel's economic captains, including the prime minister, use in setting multiyear plans, which involve outlays over time which are not covered and raising the deficit target each year with the promise of lowering it the following year.
The IMF recommends establishing a medium term budget structure that includes macroeconomic forecasts for growth and tax revenues, and fiscal forecasts for the deficit, expenditures, and debt, for each fiscal year. It also calls for establishing national priorities to which all ministers will be bound, establishing a supervisory mechanism on current expenditures, and the setting of clear targets that balance the deficit target, spending cap, and debt reduction target.
For the first time, in view of the Ministry of Finance's embarrassing forecasting errors, the IMF unequivocally advises the establishment of a fiscal council - an independent body that will promote stable fiscal policy; in other words, oversee the Ministry of Finance and its Budget Department.
The IMF says that the fiscal council should oversee compliance with fiscal rules over time, point to deviations and demand explanations why targets were missed, provide alternative forecasts, and supervise and estimate the costs and advantage of new taxes. The council's condition for success are political independence, a clear mandate, transparency and reporting, free access to information, and adequate resources (ten top economists).
The IMF rejects a "Globes" recommendation that the Bank of Israel should become just such a fiscal council, an initiative that has the support of both the Bank of Israel and the Ministry of Finance, and based on the fact that the Bank of Israel and its Research Department already carry out in practice some of the proposed functions of the fiscal council. The IMF says that this is not desirable, and that turning the Bank of Israel into a fiscal council is liable to create conflicts of interest with the central bank's basic objectives of monetary and financial stability.
The Ministry of Finance opposes the establishment of a fiscal council, claiming that it is expensive and that the situation in which the Bank of Israel functions as a kind of fiscal council has many advantages.
Published by Globes [online], Israel business news - www.globes-online.com - on February 12, 2014
© Copyright of Globes Publisher Itonut (1983) Ltd. 2014