Israel's Treasury May Seek $520 Million in Extra Cuts in 2017 Budget

Reductions would be on top of 4.5% across-the-board reduction already approved by the government

shekels
Reuters

Knesset sources said Sunday that the treasury would probably be seeking across-the-board cuts as of as much as 2 billion shekels ($520 million) in the 2017 budget, as well as other measures to keep the deficit from exceeding the target.

Talk about extra spending cuts came Sunday as the Knesset Finance Committee approved the government’s plan for a 4.5% across-the-board reduction in spending by ministries as well as amendments to the budget law widening the deficit targets for 2017 and 2018.

Under the new rules, overspending can grow to as much as 2.9% of gross domestic product in 2017 and 2018 in the two-year budget lawmakers are now debating, up from the original targets of 2.5% in 2017 and 2.25% in 2018. Only in 2019, under the new target pathway, will the deficit start declining as a percentage of GDP to 1.5% in 2023.

But Manuel Trajtenberg, a former economic adviser to Prime Minister Benjamin Netanyahu and Zionist Union MK, said the Knesset was evading responsibility for fiscal discipline.

“It’s nice to hear that we want to lower the deficit target in 2023, but we need to lower it now,” he said. “I’m very unhappy with the change because it hurts confidence in Israel’s fiscal policy. Time after time the government does the same thing when it raises the deficit and promises to lower it in future years.”

But Ilia Katz, an official with the Finance Ministry’s budget division, defended the wider deficits on the grounds that the government was taking an expansionary fiscal policy and that the strategy was to run bigger deficits when economic growth was slow.

In fact, the economy has begun picking up speed this year and GDP is expected to grow as much as 3.5%. On the other hand, tax collections have risen so sharply that the government is running narrower deficits this year that it planned.

In the meantime, TheMarker has learned that lawmakers are demanding changes to the 2017 budget that will add 2.5 billion shekels either in costs or reduced income.

The biggest item is what treasury officials said could reach 1.5 billion shekels – increasing benefits available to companies under the Law for Encouraging Capital Investment. MKs are backing calls by industrialists to extend the benefits to all exporters and not just to the high-tech sector.

They are also seeking to moderate the tax hikes planned for severance pay to employees who are fired, and on lottery winnings.