Opposition lauds Lapid for scaling back on budget cuts

Finance Minister Yair Lapid received kudos from his rivals in the opposition Thursday for his plan to scale down previously proposed economic measures and put NIS 6.5 billion back into the budget.

Lapid is set to present his budget cut plan, which has the backing of Prime Minister Benjamin Netanyahu, on Sunday. However, the move will give Israel its largest deficit ever, and could face opposition from Bank of Israel economists.

Opposition head Shelly Yachimovich (Labor) praised Lapid’s move and called it the right way forward.

“For the first time since he took office, Lapid is taking the right step,” she said.

She said that countries around the world are realizing that austerity policies are becoming obsolete and that steps toward revitalizing the economy are the right way forward. She called on the government to introduce a package of incentives that would foster more growth.

“The finance minister shouldn’t forget that the single most important growth engine is the middle class — and that hurting it by raising taxes, eroding its salary, and cutting its health and education benefits is the same as hurting the economy,” Yachimovich added.

Yair Lapid speaks in the Knesset, Monday. (photo credit: Yonatan Sindel/Flash90)

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.

The head of the left-wing Meretz party, Zahava Gal-on, complimented Lapid on his plan, but warned that the impending cuts to social services are a direct result of years of neglect by the Netanyahu government.

“Lapid made the right decision and bought social services another year on life support,” she wrote on Facebook.

“One can’t close the huge deficit Netanyahu has created in the past four years without making vital cuts and destroying what’s left of Israel’s social services,” she lamented. “The new deficit target is a direct result of [Prime Minister Benjamin] Netanyahu’s irresponsible policy of cutting taxes.”

Gal-on said that in order to restore the country’s welfare policy and reduce inequality while keeping its economic stability, the government should raise taxes on corporations and people with higher income and also revoke corporate tax exemptions.

Lapid had previously proposed a plan to reduce the country’s NIS 39 billion deficit by NIS 13 billion rather than NIS 6.5 billion through a program of raised taxes and sharp cuts to ministry budgets and public entitlements.

Putting NIS 6.5 billion back into the budget would mean raising the deficit ceiling to 4.9 percent of GDP for 2013, well above the current 3% and more than double the target of 2% originally set for 2012.

However, the Bank of Israel, which has opposed raising the deficit above 3% of GDP, is likely to be unhappy with the plan. Previous attempts by Lapid to raise the ceiling have been rejected by the central bank.

The Finance Ministry proposal cites budget overruns in 2012 and the delay in getting a 2013 budget passed as reasons for allowing the high deficit ceiling. It notes that the deficit would return to 3% in 2014.

Lapid’s original budget plan ran up against heavy opposition from fellow politicians and union representatives, who opposed cuts to ministry budgets and state worker salaries. The mayor of Eilat, which would have lost its duty-free status, threatened to close off the city if the budget went through.

Lapid has defended the austerity plan as a painful but necessary measure to rein in the deficit and prevent further financial issues down the road.