Prime Minister Benjamin Netanyahu came under harsh criticism from Bank of Israel Governor Stanley Fischer and Finance Minister Yuval Steinitz after his unilateral decision to cut gasoline taxes by 10 agorot per liter last week.
Cutting excise taxes would project a lack of leadership, Fischer told Netanyahu during a meeting the night before the decision. Treasury officials also cautioned the prime minister against it.
Ultimately, Netanyahu sided with Likud Knesset members and party activists, and announced the cut shortly before 8 P.M. on Wednesday night. This kept pump prices from hitting an all-time high, after they were adjusted upward due to rising oil prices.
Fischer and the Finance Ministry both declined to respond.
One liter of self-service 95 octane gasoline now costs NIS 7.74.
Netanyahu's order is in effect for two months, and is expected to cause a NIS 40 million budgetary shortfall. If it is extended for a full year, it will cost NIS 250 million.
Treasury officials acknowledged that Netanyahu's move was significant not because of its budgetary impact, but because of the embarrassing decision-making process.
In order to cover the shortfall, the treasury decided against the easy option of raising taxes on cigarettes and alcohol, and instead decided to cut NIS 300 million from ministry budgets, so that ministers understand that their actions "have a price," said treasury budget department officials.
Instead of a flat, government-wide cut, the cut will affect specific budgets.
While the most recent tax cut may be the treasury's excuse, the move is motivated partly in order to make sure the government does not exceed its deficit target for 2012.
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