Cabinet approves 2015 state budget

Cabinet ministers approved Israel’s state budget for 2015 Tuesday night after a long day of deliberations, with 21 ministers voting for and only one – Hatnua’s Amir Peretz – against.

The final version of the plan passed by the government saw only minor changes made to the one presented by Finance Minister Yair Lapid in late September, and which he said on Tuesday was “a responsible budget, which addresses the immediate needs of the Israeli economy, but does not neglect to construct a long-term growth-inducing economic policy.”

Peretz, meanwhile, said the budget hurt the country’s poor as well as children and the elderly and vowed to fight it “publicly and in parliament.”

The budget was also criticized by Bank of Israel governor Karnit Flug, who warned that the state would not be able to keep the deficit within the 3.4 percent limit to which ministers agreed. She added that the agreed-upon budget would only delay to 2016 the need to cut back on state expenditures.

Lapid has called the 2015 budget one of “hope and promise,” which “pumps resources into improving education, health, welfare and everything that touches the lives of Israel’s citizens.”

The final budget was reached after a long political struggle between Lapid, Prime Minister Benjamin Netanyahu and Defense Minister Moshe Ya’alon, when the three agreed in September to increase the defense budget without raising taxes.

According to the budget, NIS 7-8 billion ($1.9 – 2.2 billion) will be added to the defense budget this year and another NIS 6 billion ($1.6 billion) next year. The added funds will cover the costs of  this summer’s 50-day Operation Protective Edge in Gaza, as well as training and personnel.

Rather than raising taxes to cover the costs, Netanyahu and Lapid agreed to raise the deficit to 3.4 percent, slightly higher than the 3% target Netanyahu hoped to achieve.

To keep the deficit down, Netanyahu wanted to raise taxes, but Lapid vehemently opposed the measure and eventually prevailed, arguing that average citizens shouldn’t have to bear the cost of the war in Gaza and that a tax increase would further slow growth. Lapid even went as far as threatening to bolt the coalition in the event of a tax hike.

“The Israeli economy is strong and built on healthy fundamentals, and despite the slowdown in recent months, is still projected to be higher than European countries,” he said. “The last thing the economy needs is a tax increase.

In addition to fighting against taxes during the talks, Lapid insisted that the government must take steps to improve the lot of Israel’s middle class.

“We will not rest for a moment from the effort to lower housing prices and the cost of living,” Lapid said. “Despite the delays, the housing minister and I stand by our original forecast that in ’15 apartment prices will begin to fall.”

He also criticized those who would delay his 0% VAT plan for first-time home-buyers and promised it would take effect soon.

“It’s just a shame that some interested parties have caused a delay in the plan for political reasons, even though they know the plan will change the housing marketplace and lower prices.” he said.

Spencer Ho and Lazar Berman contributed to this report.