Israeli Finance Minister Yair Lapid is proposing to raise the government’s budget deficit limit this year to 4.9 percent of gross domestic product, instead of the earlier planned 3 percent.
The deficit limit will decline to 3 percent of GDP in 2014, instead of the planned 2.75 percent, according to the Finance Ministry’s draft amendment to the budget law, which was released today with an explanatory note. The change stems from the budget delay caused by early elections and the formation of a new government in March, it said.
“The approval of the 2013 budget at a late date significantly reduces the ability of the government to make changes in budget priorities,” the ministry said in the note. “It limits its ability to initiate amendments to the laws which would result in an increase in government revenue from taxes.”
Prime Minister Benjamin Netanyahu called early elections in October after failing to gain approval from his coalition for the budget cuts necessary to reach the 3 percent deficit target. Lapid, who took office in March, said yesterday that he is facing a 16 billion shekel ($4.5 billion) “hole” in the budget.
Bank of Israel Governor Stanley Fischer has urged the government to cut the budget deficit, saying that it is essential to ensure a decline in the public debt-to-GDP level, which dropped to 73.2 percent in 2012 from 74.1 percent the previous year. The Bank of Israel declined to comment on the ministry proposal.
“It’s a slippery slope,” former Bank of Israel Governor David Klein said in an interview on Army Radio today. “This is not a promising beginning.”
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