Finance Minister Yair Lapid sought to put a positive spin on the 2015 budget, calling the spending package hammered out after weeks of wrenching deliberations with Prime Minister Benjamin Netanyahu a budget of “hope and promise.”
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The 328 billion-shekel ($89.2 billion) budget – a figure that does not include the cost of repaying debt – unveiled at a press conference on Sunday will go to the cabinet for approval at the start of next week, after the Yom Kippur holiday. A total of 323.7 billion shekels in the regular budget is earmarked for purposes of calculating spending, while the other 4.3 billion represents a one-time supplement to the defense budget.
“This is a budget delivering good news on the social front, without tax increases, with extra money not only for defense but also for social ministries, a budget that gives resources over to education, health, welfare, personal security – everything that touches the lives of the average Israeli, both lower-income groups and the middle class,” Lapid said.
He called the 2014 budget, which had contained both sharp spending cuts and tax hikes that cost him politically, a “crisis budget” and next year’s a “budget of promise and hope.” Economists, however, though otherwise.
Overall spending is due to rise 2.4% over 2014 levels, said Amir Levy, head of the treasury budget division.
All told, the army is due to get an extra 6 billion shekels this year – as Lapid and Netanyahu agreed when they finally settled their last points of disagreement on the spending package over the Rosh Hashanah holiday weekend – with another 1.7 billion shekels constituting a permanent increase and part of the regular budget.
Lapid stressed his no-tax-hikes message, saying that it was “the last thing” the economy needs as it contends with a slowing pace of growth. Instead, under the formula he agreed on with Netanyahu, the fiscal deficit will be increased to 3.4% of gross domestic product next year, compared with the 2.5% originally targeted.
“In the budget we are presenting there is an especially strong growth-engine components. It puts an emphasis, as never before, on small- and medium-sized businesses, starting from tax easements up through easier credit. The budget contains a series of reforms for the innovation and high-tech industry,” Lapid said.
The budget also assumes that Lapid’s flagship plan for lowering housing prices by exempting many classes of new-home buyers from the 18% value-added tax will be in force, which will deprive the treasury of what some estimate at 3 billion shekels of tax revenues.
“It’s a pity that interest groups delayed the plan for political reasons, but they know that it will change the housing market and bring down prices,” Lapid asserted. He reiterated his threat to bring down the government if the zero-VAT plan fails to win Knesset approval.
Knesset Finance Committee Chairman Nissan Slomiansky (Habayit Hayehudi) expressed skepticism about the budget package and said he planned to invite Lapid to explain how it was being funded. “The budget is perfect. It lacks any growth drivers [for the economy],” he said.
“I’m glad that finally the saga between the finance minister and the prime minster has ended, but it remains a mystery where the money that Lapid has been speaking about will be coming from,” Slomiansky said, pointing to the 3.4% budget deficit as particularly discomfiting.
Among civilian ministries, the Health Ministry sees spending rise 2.8 billion shekels next year under the plan, including 500 million shekels to implement reforms proposed by a committee headed by Health Minister Yael German. The education budget will grow by 1.8 billion shekels and the internal security budget by 1.1 billion shekels.
Social welfare spending will increase in the hundreds of millions of shekels, to be dedicated to an aging with dignity program and another 500 million to help autistic children and fund a food security program for children. Holocaust survivors will get an additional 1 billion shekels and spending on higher education is to rise by 200 million shekels.