The government will have to either impose spending cuts or raise taxes to the tune of some 10 billion shekels ($2.86 billion) in 2015 if it is going to meet the deficit and spending-growth targets it has set for itself, the Knesset Research and Information Center said yesterday.
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The figure is more than double the 5.5 billion shekels that the Bank of Israel last December estimated would have to be either cut from the 2015 budget or added in new taxes. Since then, however, the cabinet has adopted a new fiscal spending ceiling that will reduce permitted spending growth by 4.1 billion shekels.
That new ceiling would limit budget growth after inflation to 2.5% in 2015, instead of 3.8% as originally set.
“We are talking about a gap of 9.6 billion shekels between obligations the government has taken on and its spending ceilings,” the authors of the report, Itamar Milrad and Tamir Agmon, wrote. “Taking into account other spending supplements that have been approved in the meantime, the gap is already more than 10 billion shekels.”
The report was ordered by Labor MKs Erel Margalit and Michal Biran, and presented to the Knesset Finance Committee ahead of a debate over an amendment to the Law for Reducing the Deficit and Limiting Fiscal Spending that will take place today as approved by the cabinet.
Margalit faulted the proposed stricter budget cap, saying it would increase poverty and strike a blow at welfare services.
“Instead of investing in economic- and social-growth drivers, which would bring about a long-term narrowing of social gaps, reducing poverty and integrating the part of the population that doesn’t partake of the growth and employment, the treasury has chosen to avoid looking into the future and is imposing a deep budget cut for 2015,” he said.
The report noted that Israel’s government spending was just 40.2% of gross domestic product, compared with an average of 45.9% in countries belonging to the Organization for Economic Co-operation and Development.
Discounting what governments pay in interest on their debt, Israel also has relatively low levels of spending compared with OECD countries. In 2011, public spending without interest payments amounted to 30.8% of GDP, 12 percentage points less than the OECD average.
“Civilian spending is the lowest among OECD counties, except for South Korea,” the report said.
The amendment to the budget law would serve to reduce Israel’s public spending ratio – not counting interest payments – to 29.7% of GDP by the year 2020. Even with the law remaining as is, the rate of public spending to GDP would only rise slightly, to 30.9% of GDP, it said.