Lapid threatens to quit coalition if taxes raised

Lapid threatens to quit coalition if taxes raised

As budget battle heats up, finance minister says move to cover defense spending is 'illogical,' calls for heavier borrowing instead

Governor of Bank of Israel Karnit Flug and Finance Minister Yair Lapid at an economy conference on September 2, 2014. (photo credit: Flash90)
Governor of Bank of Israel Karnit Flug and Finance Minister Yair Lapid at an economy conference on September 2, 2014. (photo credit: Flash90)

Amid mounting criticism of his fiscal plan for the 2015 budget, Finance Minister Yair Lapid threatened on Wednesday to pull out of the coalition if taxes were raised to cover the costs of Operation Protective Edge.

“I will not sit in a government that goes again and places its hands in the pockets of Israeli citizens when there is no real need for it,” Lapid said in an interview with Channel 2.

“I am the finance minister, I know the numbers, there is no reason or need to go once again and take money from the pockets of Israeli citizens,” he reiterated.

His comments came as politicians and officials began sparring over how to cover the NIS 9 billion ($2.5 million) cost of the 50-day military campaign against the Hamas terror group. The cabinet voted on Sunday to slash ministry budgets by 2 percent to make up some of the money, while Lapid has called for heavier borrowing instead of tax raises to cover the rest.

Lapid’s exit from the coalition, bringing his Yesh Atid party’s 19 seats with him, would immediately collapse the government and necessitate new elections unless replacement coalition partners could be found.

The finance minister told Channel 2 it was “illogical” as well as unnecessary to raise taxes, and while acknowledging the importance of the defense budget, Lapid argued the education and health budgets were equally important.

“The money needs to be in education as well, in health, and in welfare and my job is to see to it that the division is fair. The prime minister said that defense is very important, and I agree with him. Health is important too, and I’m sure the prime minister would agree,” Lapid added.

The finance minister has repeatedly stated in the past week that raising taxes in response to the military campaign was a wrong move, pushing instead to increasing the deficit cap to 3.5% of GDP in the 2015 budget to cover the defense spending.

Bank of Israel head Karnit Flug, Prime Minister Benjamin Netanyahu, and Economy Minister Naftali Bennett have all publicly opposed the plan.

Flug, who sharply criticized Lapid’s remarks said Tuesday that exceeding a 3% deficit in 2015 will ultimately lead to a reduction in the education, welfare and health budgets and expose the economy to significant risk.

Flug said increases to the deficit to cover non-reoccurring expenses like Operation Protective Edge are justified, however a deficit exceeding 3% of GDP will signal the loss of Israel’s commitment to fiscal responsibility risk a loss of credibility.

“I would very much like to say that is currently possible to ease poverty, increase spending for defense, health, education and research needs. More than anything, I would like to tell you that all of these additions can be made to the budget without anyone paying for it. It is an illusion to think that it is possible to do everything here and now,” warned Flug.

Bennett also opposed Lapid’s proposed budget increase during an address at the Calcalist economics conference Tuesday. At the conference hosted by Israel’s daily business paper, Bennett warned that increasing the deficit without addressing Israel’s underlying economic policies is tantamount to pushing the next generation deeper into debt.

Times of Israel staff contributed to this report.

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