Bloomberg News

Israel Won’t Ease Budget Discipline, Netanyahu Adviser Says

November 30, 2011

(Adds Tel Aviv bonds, shares in seventh paragraph.)

Nov. 24 (Bloomberg) -- Israel won’t increase government spending beyond planned limits, Prime Minister Benjamin Netanyahu’s top economic adviser said, even as Defense Minister Ehud Barak urges the government to boost expenditure.

“We definitely don’t intend to break the budgetary discipline,” Eugene Kandel, head of the National Economic Council, said in an interview at his Jerusalem office. “With all the danger that surrounds us in the world economy, all the uncertainty, it would be completely irresponsible to open up the budget.”

The Cabinet on Oct. 9 approved a government panel’s recommendation to cut defense spending to help finance higher social-welfare spending following mass protests over the cost of living. Barak said on Nov. 1 it would be impossible to satisfy the minimum requirements for security and increase social welfare without raising expenditure beyond the planned ceiling.

Under a fiscal rule set by the government last year, spending is allowed to increase by a predetermined amount linked to government debt and long-term growth, Kandel said.

Though spending won’t be allowed to rise above the limit, the deficit is likely to be “a little over” the target next year, Kandel said, as growth slows and revenue declines. The 2012 budget deficit is forecast at 2.6 percent of gross domestic product, compared with a targeted shortfall of 2 percent, the Finance Ministry said on Oct. 31.

‘Great Concern’

The government is “watching with great concern” developments in Europe and the U.S. because they are Israel’s main export markets, he said. Domestic growth is expected to be 3.2 percent to 3.5 percent next year, Kandel said on Nov. 22. The economy will expand 4.9 percent this year, the Central Bureau of Statistics said on Oct. 11.

Israel’s benchmark Mimshal Shiklit government bond due January 2022 fell 0.2 shekel to 109.73 at 12:05 p.m. in Tel Aviv, pushing the yield on the 5.5 percent note up three basis points, or 0.03 percentage point, to 4.73 percent. The TA-25 benchmark stock exchange fell less than 0.1 percent to 1028.68.

Kandel holds a doctorate in economics from the University of Chicago. He was recruited by Netanyahu in 2009 from Hebrew University of Jerusalem to head the economic council.

--Editors: Heather Langan, Karl Maier

To contact the reporters on this story: Alisa Odenheimer in Jerusalem at aodenheimer@bloomberg.net; Gwen Ackerman in Jerusalem at gackerman@bloomberg.net

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net


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