Finance Minister Yuval Steinitz 30.5.12
Finance Minister Yuval Steinitz Photo by Tomer Appelbaum
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State budget deficits as a percentage of GDP (infographic)
State budget deficits as a percentage of GDP.

The 2013 state budget must include spending cuts that range from NIS 11 billion to NIS 17 billion, in order to offset new spending measures set for next year.

Without the cuts, it will be impossible to keep to the budgetary guidelines to which the state is committed, according to revised assessments by the Finance Ministry staff. Up to NIS 15 billion of those cuts are considered absolutely essential, simply to stay on budget. Cutting at least NIS 2 million more ensure that the deficit will not grow.

The 2013 budget, based on fiscal calculations that determine the extent of government spending, is due to be some 3% higher than this year's budget, which would allow the state to spend some NIS 13 billion more than it did in 2012. But the government has committed to so much additional funding, that if it keeps to that commitment, and does not make cuts elsewhere, it will exceed that NIS 13 billion.

Finance officials say commitment to budgetary discipline is considered especially important in light of the economic crisis that much of the Western world is experiencing and the uncertain world economic environment that Israel will be facing.

Israel would get no bailout

At Sunday's cabinet meeting, Finance Minister Yuval Steinitz made reference to the most recent major financial development in the euro zone, the agreement of its finance ministers to provide up to 100 billion euros to Spain to bail out its banks.

"If, heaven forbid, Israel would face the situation in Spain," Steinitz said, "no entity or country will give us 100 billion euros in assistance." He took issue with figures in the political opposition and in the coalition whom he said "don't understand the major importance of budgetary discipline."

Opposition leader Shelly Yacimovich of the Labor Party said that while the prime minister and finance minister boast about the responsibility they are demonstrating when it comes to next year's budget, they are actually demonstrating irresponsibility.

Netanyahu and Steinitz, Yacimovich said Sunday, are preparing "an austerity program that will fragment Israeli society and the economy, and deepen [social] disparities even further."

She noted that Netanyahu and Steinitz intend to reduce government benefits to industry, which she said will increase unemployment, and institute across-the-board cuts that she said will immediately affect the services the public receives. She called instead for massive government investment in infrastructure and human capital.

But treasury officials say that taking into consideration the delicate circumstances of the world economy, the government does not want to risk an oversized deficit.

In 2010, the government set deficit targets for the coming years. But a revised 2013 deficit target, to account for the changes in the world economy since then, has not yet been set, nor has a revised deficit target for the current year, although the Finance Ministry is expected to limit this year's deficit to 2.5% to 3% of the country gross national product.

With the prospect of declining government tax revenues, the treasury will need to consider additional cuts or increased taxes. In all probability, it will adopt a middle course, combining both tax hikes and more spending cuts. It is expected that the necessary cuts under these circumstances would come to approximately NIS 17 billion.