Treasury set to warn budget deficit will top 4% if no spending cuts, tax hikes
search

Treasury set to warn budget deficit will top 4% if no spending cuts, tax hikes

Finance Ministry officials will also reportedly tell cabinet that ongoing political deadlock likely to weigh on growth rate for coming year

Finance Minister Moshe Kahlon (R) and Finance Ministry director-general Shai Babad at a press conference in Jerusalem on January 8, 2018. (Hadas Parush/Flash90)
Finance Minister Moshe Kahlon (R) and Finance Ministry director-general Shai Babad at a press conference in Jerusalem on January 8, 2018. (Hadas Parush/Flash90)

The Finance Ministry is set to warn next week that the budget deficit will top four percent in 2020 unless the government raises some NIS 30 billion ($8.65 billion) through spending cuts and tax increases, the Calcalist business daily reported Thursday.

The warning will be included in a Finance Ministry report to be presented Sunday to the cabinet on expected government outlays and revenue from 2021 through 2023, the paper said.

According to The Marker business daily, Finance Ministry officials were also set to tell government ministers that the lack of a budget for 2020 due to the country’s ongoing political deadlock was likely to have a negative impact on economic growth.

Also Thursday, the Bank of Israel predicted gross domestic product would grow by 2.9% this year, down from 3% in its previous forecast.

The bank also kept the interest rate unchanged at 0.25%. A statement from the bank said the interest rate would likely remain at its current level “for a prolonged period,” owing to “the inflation environment in Israel, the monetary policies of major central banks, developments in the global economy and the risks to the domestic economy, and the development of the exchange rate.”

Amir Yaron, governor of the Bank of Israel, attends a press conference in Jerusalem, March 31, 2019. (Yonatan Sindel/Flash90)

The Finance Ministry warnings and the bank’s growth forecast for the coming year come after Bank of Israel governor Amir Yaron warned last month that if the government does not raise taxes, “the deficit is expected to reach a dangerous level” of more than 4.5% of GDP, and the debt-to-GDP ratio is expected to spike, reaching 75% of GDP in 2025.

Speaking at the same conference as Yaron, the Finance Ministry’s accountant general Rony Hizkiyahu said the budget deficit in 2019 will likely creep up to 3.7%, well above the government target of 2.9%, with the debt to GDP ratio probably remaining stable at around 61%.

The political stalemate that is seeing Israel holding its third election within a year and run by an interim government for a prolonged period of time is causing a delay in the implementation of economic programs and stalling the generation of essential economic reforms, Hizkiyahu said.

Even so, a new government could still take significant steps to tackle the challenges afflicting the economy: a limping infrastructure, particularly a weak public transportation system that is lowering productivity; a lack of qualified workers for the tech industry; and over-regulation and bureaucracy that weighs on businesses.

With another election set for March 2, a budget for 2020 is unlikely to be approved until at least the middle of next year. This means that government spending in 2020 will be based on a pro-rated version of the 2019 base budget, not including any extra spending made during the year.

Shoshanna Solomon contributed to this report.

read more:
comments