Fischer Slaps Down Latest Lapid Proposal to Increase Deficit

The deficit target can't be more than 3% of GDP, insists central banker, though in practice spending will almost certainly be higher.

Bank of Israel Governor Stanley Fischer has rejected a new attempt by Finance Minister Yair Lapid to increase the deficit target in 2013-2014 to 3.5% or the gross domestic product, or failing that, to 3.25% of GDP.

The alternative of course is deep budget cuts.

Lapid’s renewed attempt to forge a compromise on the deficit limit were rejected out of hand by Fischer, who repeated earlier statements that he would object to any attempt to raise the target beyond 3% of GDP. 

A senior official at the central bank had already told Lapid and other Finance Ministry officials that the 3% mark is the upper limit as far as the Bank of Israel is concerned. These remarks were made a week and a half after Lapid tried to raise the deficit limit to 4.25% of GDP.

Ahead of a new finalized budget in August, the current deficit is in the 4.5-5% range. So even with the approval of the 3% limit, the overall deficit for 2013 will work out to about 4% of GDP.

Fischer believes that the deficit target for 2014 should also remain at 3%.

The original deficit target set by the government for 2013 was 3%, with a limit of 2.75% set for 2014.

Tomer Appelbaum
Tomer Appelbaum