Netanyahu - Emil Salman - May 3, 2012
Benjamin Netanyahu and Finance Minister Yuval Steinitz have a laugh during a Knesset plenum. session Photo by Emil Salman
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Government ministers approved a bill to increase the deficit target from 1.5% to 3% on Sunday.

The bill, which was supported by Prime Minister Benjamin Netanyahu and sponsored by Finance Minister Yuval Steinitz came under fire by Bank of Israel Governor Stanley Fischer, who supported an increase to 2.5%.

"I did not want to create a heavy tax burden," said Netanyahu during a governmental meeting on Sunday, "not when I was Finance Minister in 2003, and not now after I have spoken to the Finance Minister."

"When you increase the tax burden you suppress growth, and when you suppress growth you increase unemployment and the debt," Netanyahu explained.

Netanyahu promised his government that he will not change the state's expenditure target, despite the fact that it is "the one thing the government controls."

Netanyahu further promised Fischer that despite the increase, his government will "act responsibly, as it has always acted."

In a speech Thursday at the Caesarea Economic Policy Planning Forum, Fischer called for a budget deficit of 2.5%, adding that such a policy would "send a message that the budget was under control and that we intend to conduct ourselves as a responsible, orderly country like Finland and not like the weaker countries in Europe."

The increase of the deficit next year to 3%, which is also opposed by Gal Hershkovitz, the head of the Finance Ministry's budgets division and by the ministry's accountant general, Michal Abadi-Boiangiu, would boost the deficit in next year's budget from NIS 14.3 billion to NIS 28.5 billion. A majority of the cabinet is expected to vote in favor of the move.

Although Fischer's speech was not welcomed in the Prime Minister's Office, Netanyahu is thought to hold a very high regard for the central bank governor and his views. Ironically, Fischer's admonitions could be used by the prime minister to help rein in the budget demands of the various ministries.

Steinitz's bill, if passed by the Knesset, would amend 2010 legislation that set the 2013 target at 1.5% and the 2014 deficit target at 1.0% of the country's gross national product. Steinitz's amendment would call for a 2014 budget deficit of under 3% and would set a 2015 target smaller than 2014's. It would limit the 2016 deficit to a maximum of 2.0%. It would set a deficit target of 1.5% by 2019.