BICOM

In a surprising move, Israel’s Finance Minister Yair Lapid yesterday announced a revised budgetary plan for 2013 that limits the deep budget cuts and tax hikes which had been expected and will increase the country’s deficit.

Just two weeks ago, Lapid had warned of an impending budgetary “war” after he indicated plans to cut a series of benefits, ministry budgets, increase taxes and reform a number of public services. He had been thought to concur with Bank of Israel Governor Stanley Fischer’s advice not to exceed the deficit limit of three per cent and the plan had been predicted to cut the deficit by £2.3billion.

However, in a revised plan announced yesterday, Lapid suggested that in 2013 the deficit will be cut by just half that amount, effectively increasing the deficit’s limit to 4.9 per cent of GDP. Globes reports that Fischer does not view Lapid’s revised plan positively and Haaretz comments that it sets the two “on a collision course.” Lapid’s proposal suggests that in 2014 the deficit target will return to three per cent, partly through extensive spending cuts of £3.2billion. In effect, increased taxes and budget cuts would be postponed until next year.

The proposal says that the changes to Lapid’s original plan and the high deficit target is necessary due to larger than expected government expenditures and delays in approving the 2013 budget as a result of January’s election. Lapid’s original proposal had been opposed in several quarters, not least by ministerial colleagues following talk of large cuts to both the defence and education budgets. Meanwhile the Labour Federation head Ofer Eini had threatened a strike in the absence of consultations over budgetary decisions. Lapid met Eini earlier this week. Lapid’s revised plan will be discussed in cabinet on Sunday and will then require Knesset approval.