Bank of Israel says more tax hikes needed in 2015

Israel will still have to further raise taxes in 2015 and beyond, despite the austerity measures introduced by the Finance Ministry for the 2013-14 budgets, according to a Bank of Israel economic analysis released Sunday.

The austerity measures, which include tax increases and state budget cuts, are designed to curb Israel’s ballooning budget deficit. “If all of the government’s decisions are approved, the plan is expected to reduce the deficit in 2013 and 2014 in accordance with the new targets set by the government,” the BOI said in a press release.

However, because “the government’s expenditure commitments for 2015 and onward are already greater, by several NIS billions, than the ceiling set by law” the government will have “raise tax revenues further in order to meet deficit targets in 2015 and 2016,” the bank said.

The analysis indicated that increased taxes will still be necessary “even if the government reduces its expenditure commitments,” especially if economic growth during the period is not “especially rapid.”

The bank suggested that, because the need for a tax increase largely comes from the difference between long-term programs adopted by the government and the legal limit on government spending, “it is important to adopt a mechanism that will monitor the development of such gaps on a continuous basis and will require them to be dealt with in a timely manner.”