A Taxing Summer: Finance Ministry, Bank of Israel Try to Reach Their Own Truce

Finance minister Lapid and Bank of Israel governor Flug will clarify positions on raising taxes in a meeting Sunday.

Emil Salman

Finance Minister Yair Lapid and Bank of Israel Governor Karnit Flug are due to meet Sunday at Lapid’s initiative in an effort to reduce tensions between them. Lapid, who leads the Yesh Atid party, called Flug on Friday and spoke with her briefly about meeting to clarify their positions and clear the air.

Lapid had supported the appointment of Flug last year as the central bank governor, but the two have been at odds since. There has been particular animosity between them recently as Lapid seeks to find ways to fund this summer’s fighting in the south without raising taxes. Flug has insisted that the government’s budget deficit not go beyond 3% of the gross national product, suggesting that the funding gap for next year be met through a possible combination of tax increases, the elimination of tax exemptions and spending cuts.

For his part, Lapid has been pushing to have the costs of the war covered in part by a one-time increase in the deficit.

Flug has also opposed one of Lapid’s flagship projects – the exemption from 18% value added tax for first-time home buyers – due to its cost to the treasury, about 3 billion shekels in 2015.

The finance minister’s scheduled meeting with Flug Sunday comes in advance of debate on next year’s budget. The two are apparently meeting among concern on Lapid’s part that Prime Minister Benjamin Netanyahu and the central bank governor could align against Lapid. In the past, Lapid’s rhetoric against Flug has taken on more personal tones, for example when he complained that she never worked in the business sector. Other members of Lapid’s Yesh Atid Knesset faction have also spoken out against her.