The steps taken by the Treasury to curb Israel's growing budget deficit are important but too modest in light of the extent of the deficit, Governor of the Bank of Israel Professor Amir Yaron informed Finance Minister Moshe Kahlon at a meeting Monday devoted to across-the-board cuts by the government.
Yaron said that without the steps approved by the government, the nation's deficit would exceed 4.5% for 2019. Ten days ago, in a phone briefing to reporters, the Treasury said that the deficit stood at 4%.
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Yaron told ministers at the weekly cabinet meeting that "it is important that these steps be implemented to send signals to the markets that the decision makers are starting to address the inflated deficit."
Yaron repeated that the deficit was 4.5%, not 4%, and would only remain at that level if the economy continued to grow at the expected rate, with no aberrations.
"The debt-to-GDP ratio, which has dropped in recent years, and fiscal responsibility, are an important strategic tool for Israel. If the deficit is not fixed by the government immediately, the debt-to-GDP ratio will likely rise to over 65% in 2020. A drop from 70% to 65% [debt-to-GDP ratio] is a big difference, as is the rise from 60% to 65%," Yaron said.
Yaron recommended that the government identify the "less important" expenditures, and cancel them. He also recommended that the nation's tax infrastructure be examined and that unwarranted tax exemptions be revoked.
In addition, Yaron said that the government would have no choice but to bite the bullet and raise taxes. He said that the current fiscal picture presented "challenges," and that it was important that the next government take immediate action to address those challenges.
