Netanyahu-Lapid Standoff Over Budget Shows No Signs of Abating

Cabinet meeting reportedly to be dedicated to spending package canceled.

Emil Salman

The standoff over the 2015 budget between Prime Minister Benjamin Netanyahu and his finance minister, Yair Lapid, showed no signs of abating Thursday as the upcoming Sunday cabinet meeting, ostensibly about the budget, was canceled.

Meanwhile, Netanyahu forcefully reiterated his stand on the issue, saying that he was determined to meet the defense establishment’s demands for an 11 billion-shekel ($3 billion) or more budget increase, while keeping a lid on the deficit.

“Security rests, of course, on the economy and we don’t want to endanger this. We need to increase the defense budget but to do it responsibly in a way that won’t lead to an unrestrained increase in the deficit,” Netanyahu told a conference on Thursday.

Earlier in the day his office said the weekly cabinet meeting on Sunday was being canceled for the second time in a row, with officials citing “the issue of the budget” as the reason. However, the budget wasn’t known to be on the agenda; the first cabinet meeting on the matter has yet to be scheduled.

Netanyahu and Lapid have been at loggerheads for weeks on fiscal policy, which – in addition to Operation Protective Edge over the summer – has caused budget deliberations to fall far behind schedule. In most years, the cabinet holds two or three sessions on the matter in the summer, but this year it has yet to meet.

The prime minister favors granting all of the army’s budget demands, but doesn’t want the overall budget deficit to exceed 3% of gross domestic product. That is higher than the 2.5% now targeted, but would almost certainly mean imposing tax hikes and spending cuts.

Lapid is equally insistent that he will not raise taxes or give up his plan to eliminate the value-added tax on many new home purchases, even though it would cost the treasury some 3 billion shekels in lost tax revenues. Instead, he wants to cap the defense-spending increase at 2.5 billion shekels and increase the budget deficit to as much as 4%, which would give the government an extra 41 billion shekels of spending money.

In all events, Netanyahu and Lapid – together with their top aides and Bank of Israel Governor Karnit Flug – are due to meet Sunday for a second working meeting on the budget. The meeting will be largely informational and technical, and officials said they didn’t expect any aspect of the dispute to be addressed, much less resolved, during the meeting.

Lapid’s Yesh Atid party rejected an offer by ultra-Orthodox lawmakers on Thursday to end their filibuster on so-called zero-VAT legislation. Moshe Gafni (United Torah Judaism) proposed ending the filibuster and going to work on moving the legislation through the Knesset Finance Committee, all in the first day of the Knesset’s winter session, October 26.