Next Year's Budget Is Falling Hostage to the Israel-Hamas Fighting

Finance Minister Yair Lapid will have to raise the budget deficit and cut spending in light of defense spending.

Zvi Zrahiya
Zvi Zrahiya
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Finance Minister Yair Lapid.
Finance Minister Yair Lapid.Credit: Tomer Apelbaum
Zvi Zrahiya
Zvi Zrahiya

In addition to the human cost of the fighting with Hamas and its allies in Gaza, it will be hard for Finance Minister Yair Lapid to put together a budget for next year without austerity measures.

The finance minister, who has repeatedly promised that he will not impose new taxes, will apparently have to raise the budget deficit to more than 3% of gross domestic product. He’ll also have to impose spending cuts, the effects of which will be felt by everybody.

That includes the middle class, the constituency Lapid put front and center in his Yesh Atid party’s election campaign at the beginning of last year.

Meanwhile, the parties in the governing coalition, which do not always see eye to eye on the military operation in Gaza, have been in no hurry to support austerity measures to finance the costs involved. The chairman of the Knesset Finance Committee, Nissan Slomiansky of Habayit Hayehudi, has already announced that the panel will not lend a hand to cuts to welfare, education and health. He also says the committee will not support a tax hike.

The 2015 budget has therefore fallen hostage to resistance to austerity measures. In the face of an expected increase in the defense budget, there are a number of views on how the problem will be solved.

One group of MKs, including those from the ultra-Orthodox parties, say support would be lacking for a budget full of austerity measures; therefore, a general election would be moved up to the middle of next year. By law, if the 2015 budget is not passed by March 31, parliament is automatically disbanded. Elections would follow on June 30.

In 2012, the Knesset was dissolved and elections was scheduled for January 2013 after Prime Minister Benjamin Netanyahu and the finance minister at the time, Yuval Steinitz, failed to win support for the budget.

Another view among MKs is that Lapid, who before the Gaza war promised that he would improve the average citizen’s lot in 2015, wants an austerity budget to fail to pass. This would give him a chance to take Yesh Atid out of the coalition without imposing the fiscal burden on the people.

According to this view, since support for the party has been on the decline, it would be better to head into an election from the opposition, especially if the middle class doesn’t see its fortunes improving.

“Lapid is behaving like someone who doesn’t intend to pass the budget in the Knesset,” said MK Yitzhak Cohen of the ultra-Orthodox Shas party. He said this was the case based on Lapid’s “insistence on his value-added-tax exemption plan at a time of declining revenues and growing expenditures, and based on his statements about not raising taxes and his commitment to increase the budget for social welfare, health, and so on.”

Coalition sources say that if the VAT exemption plan, which applies to qualifying buyers of new homes, doesn’t pass by mid-November, Lapid will not hesitate to pull Yesh Atid out of the government. If the finance minister takes this step, the prospects for an early election would grow.

Netanyahu could bring the two ultra-Orthodox parties into the coalition. Shas would probably be happy to come on board, but the prime minister would also need United Torah Judaism.

During the fighting in the south, Netanyahu tried to bring the two parties into the government but encountered resistance from Yaakov Litzman of United Torah Judaism. The prospect of bringing the Labor Party in to replace Lapid’s Yesh Atid is also not assured. Feelers to Labor to that effect during Operation Protective Edge were rebuffed.

In the end, MKs also say that many of their number would bite the bullet and pass the budget rather than face a new election.

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