Finance minister at odds with PM over tax hikes as dollar hits 3.5-year high

Finance Minister Yuval Steinitz objected on Wednesday to Prime Minister Benjamin Netanyahu’s decision not to raise taxes and to increase government spending. Steinitz said Israel is “in the midst of an economic world war” and that only cautious financial policy can guarantee economic stability.

“Perhaps we have recovered, but… the crisis [in the world economy] is still there, and it threatens to drag us down into its swampy depths,” Steinitz said, adding that the government must make unpopular decisions in order to weather the economic storm.

Steinitz’s remarks followed the prime minister’s decision earlier Wednesday to ignore the recommendations of Bank of Israel Governor Stanley Fischer and Finance Ministry officials to cut spending and raise taxes. Netanyahu instead announced that taxes will not be raised in 2013 and the budget deficit target would be doubled from 1.5 percent to 3%, indicating a potential deficit of 13.5 billion NIS.

The shekel plunged to a three-year-low against the US dollar on Wednesday in reaction to Netanyahu’s announcement.

The US dollar was trading at NIS 3.94 on Wednesday, marking a three-and-a-half year high. The dollar has risen from NIS 3.85 over the past 10 days.