The government’s proposed budget for 2013-2014 from the fiscal perspective

09/06/2013

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  •   The proposed budget for 2013–14, which was approved by the government, includes a reduction of NIS 18 billion in the government’s expenditure programs in 2014, and an increase in tax rates valued at NIS 15 billion.

  •  The government decided to raise the expenditure ceiling for 2013 by NIS 6.5 billion (about 0.7 percent of GDP) and to set the deficit ceiling at 4.65 percent of GDP, higher than the target of 3.0 percent of GDP set by law in August 2012. The need to change the targets derives from the expectation that the Knesset will approve the budget, and most of the measures associated with it, only at the end of July 2013. Thus they will only affect part of this year.

  •  If all of the government’s decisions are approved, the plan is expected to reduce the deficit in 2013 and 2014 in accordance with the new targets set by the government.

  •  The tax increases and the marked revision in the expenditure path were necessary. Although in the short term they act to slow economic growth, without those measures the deficit in the coming years would have exceeded 6 percent of GDP, and the debt to GDP ratio would have neared 100 percent by the end of the decade. This process would have endangered Israel’s financial stability and greatly increase the burden of interest payments in the budget.

  •  The government’s expenditure commitments for 2015 and onward are already greater, by several NIS billions, than the ceiling set by law. If growth will not be especially rapid, then even if the government reduces its expenditure commitments to be in line with the ceiling, there will be a need to raise tax revenues further in order to meet deficit targets in 2015 and 2016.

  • Since the current need for adjustments derives to a large extent from the gap between the cost of multiyear programs that the government adopted and the expenditure ceiling, it is important to adopt a mechanism that will monitor the development of such gaps on a continuous basis and will require them to be dealt with in a timely manner.