Yair Lapid: Budget Will Aid Middle Class in Long Term

Finance minister says 'Riki Cohen will lose NIS 299, but she bought herself an insurance policy.'

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Finance Minister Yair Lapid and treasury officials mounted a staunch defense of the draft 2013-14 budget on Thursday, even as demonstrators gathered in front of his home last night and planned bigger protests for Saturday evening in Tel Aviv and other cities.

“Riki Cohen will lose NIS 299, but she’s bought herself an insurance policy not to find herself in Spain or Greece,” Lapid said on Thursday in an interview on Army Radio, referring to his archetypal middle-class Israeli whose interest he has vowed to defend. “I’m implementing what I promised and I’m in the treasury to protect the middle class.”

He spoke two days after the cabinet approved the spending package, which calls for NIS 388.3 billion in allocations this year and for the first time ever breaching the NIS 400 billion mark in 2014. But it also calls for tax hikes of NIS 4 billion to NIS 5 billion this year and NIS 14 billion in 2014 with deep cuts in almost all sectors.

A poll by Haaretz this week showed that Lapid’s approval rating had sunk to just 19%, versus 53% expressing dissatisfaction with his performance as finance minister. Lapid on Thursday defended the measures he took, saying a deteriorating fiscal situation and a slowing economy left him no choice.

“We acted responsibly and made unpopular choices. In another six months we wouldn’t have been able to come up with old-age or disability allowances,” he said. “My [election] campaign spoke about defending the middle class. This time we went after the tycoons and the Haredim who had enjoyed protection. We accomplished something that hadn’t been done in 65 years.”

Pointing to reforms contained in the Economic Arrangements Law that accompanies the budget, Lapid said tax hikes and spending cuts were not the only factors that would determine economic growth. “We definitely created growth engines,” he said. “What is the business concentration committee? What is the reform of the car market? All these will generate growth. People say they were cut, but the growth engines exist in the budget.”

‘Progressive budget’

Meanwhile, a senior Finance Ministry official, speaking on condition of anonymity, told TheMarker Thursday that the budget “is good, it’s right, it’s progressive and it’s well-balanced.”

“It prevented an immediate financial crisis and restored the credibility of economic policy-makers in the international and domestic markets. It has laid out clear priorities − education, employment, infrastructure − and encourages Haredim, Arabs and the chronically unemployed to go out to work,” he said.

When preparing the new budget, he said special emphasis was placed on fiscal retrenchment and restoring financial stability. If it weren’t for the spending cutbacks and tax increases, Israel would have finished 2013 with a deficit equal to 5.5% of gross domestic product, he said, instead of the 4.65% deficit now projected for 2013. That figure is supposed to go down to 3% in 2014.

“If not for the budget, the economy was headed toward financial crisis, rising borrowing costs, the loss of markets and damage to growth,” according to the official. “The budget put the economy back on the right track.”

The budget priorities include reductions in areas less relevant to economic growth and employment, the official said, including cutbacks in defense, public sector wages and child allowances. On the other hand, areas supporting growth and employment are being increased, including education, infrastructure and public transportation, he pointed out.

The 1.5% hike in income tax rates for all brackets will mainly hit higher-income groups, since 50% of the population doesn’t reach the tax threshold, he said. Raising the corporate tax rate to 26.5% will only affect the well-to-do.

Saturday night’s protests will take place in Tel Aviv, Jerusalem and Be’er Sheva, activists said Thursday. Rallies are planned in front of the homes of Israel’s best-known tycoons, including Nochi Dankner of the IDB group. Rallies are also planned in front of Prime Minister Benjamin Netanyahu’s official residence in Jerusalem and his private home in Caesarea.

Finance Minister Yair Lapid. Credit: Ofer Vaknin

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