PM Tells Defense, Finance Ministers to Stop Squabbling Over the Defense Budget

Prime Minister Benjamin Netanyahu yesterday afternoon told Defense Minister Moshe Ya’alon and Finance Minister Yair Lapid to end the mutual recriminations flying between them and their respective ministries over cuts to the country’s military budget. He said he would decide the issue within a few weeks and until then it is important to keep the public discourse businesslike.

• Lapid rebuffs army demand for more funding
• Bank of Israel: Government must cut spending and raise taxes
• IDF nixes reservist training due to budget cuts
• Steinitz: Defense Ministry using 'undemocratic tricks' to protect budget

The Finance Ministry forecasts the Israeli economy will grow by only 3.1% in 2015, similar to its estimates for this year. Economic growth was 3.3% in 2013 and 3.4% in 2012. But in 2011 annual growth was 4.6%, and in 2010 it reached 5.7%. Economists estimate the Israeli economy’s potential natural growth rate is 4% to 5% a year.

The Bank of Israel’s projection for growth next year is a slightly more pessimistic 3%.

The treasury is preparing its forecasts for 2015 in areas including inflation, exchange rates and tax revenues, which will be used in the drafting of the 2015 state budget. The figures on the revenue side will determine the levels of government spending next year. The expected low growth rate will definitely have implications for spending, as well as for tax revenues.

The International Monetary Fund and the OECD are actually more optimistic about the Israeli economy, forecasting growth of 3.4% and 3.5%, respectively, for 2015.

The Finance Ministry’s budget division faces significant pressure in drawing up next year’s budget. In its recently issued annual report, the Bank of Israel said the government had to reduce spending by 12 billion shekels ($3.4 billion) and find another 8 billion shekels in tax revenue, either through tax hikes or improved collection, to reach its 2015 budget-deficit target of 2.5% of gross domestic product.

The Finance Ministry called the figures inaccurate, saying the true figure is “only” 11 billion shekels. Either way, the treasury is still worrying how to make up for this hole in the budget, especially after Lapid declared that taxes will not be raised next year and in light of the defense establishment’s demands for a 5-billion-shekel increase in its budget for next year.