After Finance Minister Yair Lapid took Prime Minister Benjamin Netanyahu and Bank of Israel Governor Stanley Fischer by surprise by announcing his intention to raise Israel’s budget deficit to a record high, he amended his proposal Friday, saying that he intended to raise the deficit ceiling by a slightly more moderate margin.
Lapid had announced Wednesday that he planned to increase Israel’s budget deficit ceiling from 3 percent to a record 4.9%. The Bank of Israel previously shot down requests by Lapid to raise the deficit ceiling from 3% to 3.5%.
But on Friday, Lapid said he would raise the deficit ceiling to 4.65% instead of 4.9%, meaning that the imminent budget cuts of NIS 6.5 billion will still take place and taxes will be raised by about NIS 5 billion.
In 2014, the budget deficit ceiling will once again be lowered to 3% of the GDP, its current rate.
The announcement surprised both Netanyahu and Fischer, who were not informed of it by Lapid in advance.
A source close to Netanyahu told Channel 10 that Lapid’s proposal, which is set to be discussed by the Cabinet on Sunday, drew ire from government circles for its sudden nature.
On Thursday, credit-rating agency Standard and Poor’s lowered Israel’s rating in local currency, citing the country’s decreased fiscal performance and monetary policy as reasons behind the move to drop Israel to A+/A-1 from AA-/A-1+.
However, it said Israel’s rating in foreign currency would stay the same at A+/A-1.
“The lowering of the local currency rating results from recent fiscal slippage, highlighting the gap between fiscal performance and other key metrics such as economic performance, external balances, and monetary policy flexibility,” the agency said in a statement.
Lapid received kudos from his rivals in the opposition Thursday for his plan to put NIS 6.5 billion back into the budget, with opposition head Shelly Yachimovich (Labor) praising the move and calling it the “right step.”
Aryeh Deri, leader of the ultra-Orthodox Shas party, also expressed approval of Lapid’s modifications. “The government will have our full support in any sensible decision it pursues,” he said, but added that his party still planned to fight the intended cuts.
Lapid earlier proposed a plan to reduce the country’s NIS 39 billion-deficit by NIS 13 billion through a program of raised taxes and cuts to ministry budgets and public entitlements. However, he ran up against opposition from politicians and union officials, who said they would not allow slashes to state worker salaries or ministry budgets. Others had opposed Lapid’s proposal to increase sales and income taxes.
Lapid had defended the austerity plan as a painful but necessary measure to rein in the deficit and prevent further financial troubles down the road.