State budget deficit soars to NIS 14 billion in June
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State budget deficit soars to NIS 14 billion in June

Finance Ministry figures show overspending hit 3.9% of GDP, far exceeding the 2.9% annual goal set by treasury

Finance Minister Moshe Kahlon speaks at the 16th annual Jerusalem Conference of the Besheva group, on February 12, 2019. (Yonatan Sindel/Flash90)
Finance Minister Moshe Kahlon speaks at the 16th annual Jerusalem Conference of the Besheva group, on February 12, 2019. (Yonatan Sindel/Flash90)

The national budget deficit surged to NIS 14 billion ($3.9 billion) in June, according to data published by the Finance Ministry on Thursday.

The figure, representing a deficit of 3.9% of gross domestic product (GDP) on an annualized basis, is slightly higher than the 3.8% annualized deficit reported in April and May, and well beyond the 2.9% target set by the Finance Ministry for 2019.

The data shows that the cumulative deficit reached NIS 21.9 billion ($6.1 billion) for the first half of 2019. The cumulative deficit for the same period in 2018 stood at NIS 7.8 billion ($2.2 billion).

Israel has set an annualized budget deficit target for the year at NIS 40.2 billion.

The numbers were published days after the cabinet approved an across-the-board NIS 1.2 billion ($333 million) cut to the national budget designed to reduce the soaring deficit.

The Finance Ministry’s unpopular plan to slash 1.75 percent of ministerial budgets months before an election drew opposition from lawmakers and cabinet ministers whose ministries would be affected by the austerity measures.

A general view of the Ministry of finance in Jerusalem, November 26, 2006. (Flash90)

“Budget cuts are hard, but they are necessary,” Prime Minister Benjamin Netanyahu told cabinet members ahead of last Monday’s vote. “Nobody wants to do this, I understand the ministers whose offices will be affected by the cuts, but this is what we have to do. We have to take care of our priorities.”

In January, the treasury warned of slower economic growth in 2019 that would result in lower tax revenue, resulting in a projected budget shortfall of around NIS 10 billion ($2.7 billion). The deficit increase was exacerbated by increased government expenditure as ministers acceded to demands for higher wages in the public sector, including the police, or spent money on projects to make housing cheaper for consumers.

In early 2019, Kahlon was reluctant to announce budget cuts or tax increases before the April 9 election. Economists had warned the new government would have to set out long-term policies to curb the shekel’s rise, boost education and infrastructure, and trim bureaucracy. But Kahlon’s hand appears to have been forced after no government was formed in May and with Israelis due back at the polls again in September.

On Thursday, former finance minister Yair Lapid, No. 2 in the Blue and White party, said the true deficit is even higher than what Kahlon’s office published, and called for a change at the top.

“You can’t solve the deficit while also transferring billions to extortionists and extremists,” he said, referring to budget demands made by ultra-Orthodox parties during May’s coalition negotiations.

If a budget deficit is too high, it gives the government no room to deal with a potential economic slowdown through greater spending, economists and analysts have warned.

In 2018, the budget deficit came in almost miraculously within the target set by the government, exactly at 2.9% of GDP, according to Finance Ministry data. Most analysts had predicted the deficit in 2018 would also breach the target, based on preliminary data that showed there would be a shortfall of income.

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