The cabinet approved a 328-billion-shekel ($88 billion) state budget on Wednesday, a 2015 spending plan that includes a whopping 6-billion-shekel increase in defense outlays.
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But another big issue has yet to be resolved: the Defense Ministry’s demand for another 5 billion shekels on top of the 6 billion.
At the cabinet meeting, Environmental Protection Minister Amir Peretz was the only minister to oppose the budget, which will now be submitted to the Knesset for approval by the end of the year. Finance Minister Yair Lapid voiced optimism as he opened the meeting.
“Today we will present the government with a budget designed to bolster defense and set a social agenda, encourage growth and empower the weak sectors and the middle class,” he said.
Lapid said his budget was “responsible” and “relates to the immediate needs of the Israeli economy but does not overlook the crafting of long-term, growth-oriented economic policy.”
Still, Bank of Israel Governor Karnit Flug, who serves as an economic adviser to the cabinet, criticized the planned deficit ceiling of 3.4% of gross domestic product. That number had originally been set at 2.5%.
Flug predicted that the deficit would wind up at 3.6% because the Finance Ministry had an overly optimistic outlook on tax revenue.
Meanwhile, September tax collections have fallen from the same month a year ago. The government took in 21.3 billion shekels in September, down 1.7% correcting for inflation.
“In addition to a substantial increase in the defense budget, the economic plan considerably expands budgets for improvements in education, health, welfare and personal safety,” Lapid said. “At the same time, we continue our overall effort to solve the housing crisis, before this price monster gobbles up an entire generation in Israel.”
The proposed 2015 budget includes 2.8 billion shekels more for health, 1.8 billion shekels more for education, 1 billion shekels more for public security, 900 million shekels more for Holocaust survivors, 700 million shekels more for social welfare and the National Insurance Institute, and 600 million shekels more for transportation.
Part of this funding is to be covered by 1 billion shekels from the Jewish National Fund, which the organization is letting the government retain from leases on land owned by the JNF and managed by the Israel Lands Authority, a government agency.
Addressing consumer complaints about the cost of living, Lapid said the budget would help “battle the cost of living in Israel, the prices of food, housing and basic products . The cost of living is threatening to crush the citizens of Israel, and we will not shirk our duty to deal with prices, taking aggressive measures that we haven’t taken in the past if necessary.”
The 2015 budget plan, which envisions 65 billion shekels for defense and 45.5 billion shekels for education, is similar to the one for 2014, except for the 6-billion-shekel increase for defense.
It contains neither reforms that could spur economic growth nor attempts to reduce poverty and social gaps. Any cuts to ministry budgets are minor. There are no new taxes, a rarity for Israel.
Flug, however, said the government’s budget policy was fraught with risks. The government was shifting debt to 2016; as a result, in 2016 Jerusalem will have no choice but to raise taxes or eliminate tax exemptions, she said.
According to Flug, the government was also failing to stick to its pledge to reduce the country’s debt-to-GDP ratio, a key criterion when rating agencies set Israel's credit rating.
The Finance Ministry disagreed with Flug.
“The 2015 state budget includes a 2.8% [economic] growth forecast and a debt ceiling of 3.4%. This ceiling was set by the prime minister and the finance minister, and the state budget was developed based on it,” the ministry said in a statement.
“The state budget presented to the cabinet is expected to meet these targets and is not expected to exceed the budget deficit that was set.”