News Column

Lack of Treasury consensus delays 2015 budget

June 23, 2014

By Adrian Filut, Globes, Tel Aviv, Israel

June 23--Sources inform "Globes" that Minister of Finance Yair Lapid will decide within days the guiding principles of his 2015 budget and fiscal policies, which go against the position of the Bank of Israel and top Ministry of Finance officials.

Ministry of Finance officials have been holding marathon talks for weeks, but in utter contrast to the past few years, this year there is no draft at the beginning of July. The sources said that the delay is due to disagreements between Lapid and top ministry officials, including Ministry of Finance director general Yael Andorn and Budget Director Amir Levy. Despite the many people quietly talking about "internal disagreements", until now the ministry has outwardly been able to maintain a unified front, but the fact that, a week before the start of July, there is no agreement on the big numbers is starting to cause ferment and division.

"Lapid controls the officials with a firm hand, and set unprecedented budget principles," said a top Ministry of Finance official involved in the talks. He said that Lapid recently decided on the principles in three main areas: revenues (taxes), expenditures, and structural reform (the economic arrangements law).

On the revenues side, as Lapid told "Globes" last week, there will be no tax hikes in 2015. Governor of the Bank of Israel Dr. Karnit Flug totally opposes this position, recommending NIS 11 billion in tax hikes. The sources said that top Ministry of Finance officials have advised Lapid "to take steps on the revenues side" (code for tax hikes or the cancelling of tax breaks), but Lapid has rejected them out of hand.

As for the 2015 economic arrangements bill, Lapid has approved the most limited version of the bill, in line with promises to his electorate. The bill will apparently be the thinnest ever, and include measures related to the Jewish National Fund and unfunded pensions. Top ministry officials wanted to include other structural reforms in the bill.

When Prime Minister Benjamin Netanyahu was finance minister in the 1990s, Levy was known as the deputy for economics and Andorn as the deputy for welfare, they used the economic arrangements law to make widespread structural reforms.

Lapid has also vetoed budget cuts beyond NIS 9-10 billion. The Bank of Israel says NIS 18 billion in "adjustments" are needed, if no tax hikes are made, and NIS 7 billion with NIS 11 billion in tax hikes. The proposed cuts are smaller than in previous years, and depend on the Ministry of Finance's bargaining skills in the tough negotiations with the Ministry of Defense. Since 2009, Netanyahu governments have given the Ministry of Defense NIS 16.7 billion in budget supplements (including a NIS 1 billion down payment to vacate Sde Dov Airport in Tel Aviv), over the Ministry of Finance's objections.

Senior Ministry of Finance officials say that Lapid was burned by the ministry's officials in the 2013-14 budget. "They told him it was a disaster, that the deficit would be 5% of GDP, and that there would be a fiscal crisis. In the end, the deficit was 3.2% of GDP without an income tax hike, and the cumulative deficit is a low of 2.4% of GDP. The threats he made to the public under the officials' guidance and the austerity measures he made cost Lapid a heavy political price."


(c)2014 the Globes (Tel Aviv, Israel)

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Source: Globes (Tel Aviv)

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