Former Treasury Official Warns 'The Israeli Public Will Pay the Price for Deficit Spending'

Yarom Ariav says that maintaining the deficit target was a cornerstone of government policy in the past.

Moti Bassok
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Moti Bassok

Former Finance Ministry director general Yarom Ariav is sounding the alarm over what he sees as the importance of keeping the country's deficit under control, claiming it is possible to promote social justice while still avoiding deficit spending - "like in Sweden."

"The deficit does harm to economic stability, especially for an economy like Israel's, which faces geopolitical problems," said Ariav, adding that "it also encumbers future generations."

Ariav, who served as Finance Ministry director general from 2007 to 2009, has said in the past that maintaining the deficit target was a cornerstone of government policy.

"In 2007, when I was at the treasury, we recorded a 0% deficit, which allowed us to get through the global crisis of 2008-09 with relative ease," he said. The deficit strikes a blow to the economy in the short term and eats at budget resources."

"We see that clearly in the state budget," Ariav continued. "Now [the state] is making interest payments of close to NIS 40 billion a year. It's the second-largest budget line after defense. If we had a debt-GDP ratio of 60%, which is the ratio we are aiming for, we would have another NIS 15 billion. It would be easy to see what we would do with that in [the fields of] defense, education, etc."

"The public is not stupid," Ariav asserted. "They understand they will soon have to pay the price, because an increased deficit target now means higher taxes tomorrow, so they are acting accordingly, cutting consumption and thereby hurting growth."

Ariav also warned against overly optimistic economic forecasts when planning taxation policy, and urged caution with regard to one-time taxation policies at a time when he said tax rates are low. He cited, with disapproval, the government's consideration of a one-time tax break to certain multinationals who wish to take their profits out of Israel. "Correct tax policy is no less important than spending policy," he said.

Yarom Ariav.Credit: Ofer Vaknin