Governor of the Bank of Israel Professor Amir Yaron warned Tuesday that the state deficit will increase unless the government raises taxes before taking on any new endeavors.
"If the government continues implementing all of the programs and undertakings that it has taken upon itself, and does not raise taxes, the budget deficit is likely to stabilize at the dangerous level of over 4.5% of GDP, and the ratio of debt to GDP will reach 75% by 2025," Yaron warned the audience at the Israel Democracy Institute's Eli Hurvitz Conference on Economy and Society in Jerusalem, according to financial daily Globes.
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"This is a significant scale, and it does not include the defense budget supplement that the government may implement," he said. "In a downturn scenario, which is unfortunately not unlikely, the increase in the deficit and debt will be even more substantial."
According to the report, Yaron said that even maintaining the 3% deficit target set by the government "would not prevent a continued increase in the ratio of debt to GDP. The government will therefore have to make a greater effort to stabilize the ratio of debt to GDP."
Dealing with the deficit entails budget cuts for all government ministries, he added, noting that "the increase that we saw in civilian spending in recent years is a result of the fact that the government had to respond to the public's budget demands. There is therefore little likelihood that spending can be significantly cut without painful damage to the services supplied by the government."
According to the report, the BOI chief said that to meet the budgetary challenge, the government would eventually "have to take action to increase its revenue," but did not elaborate on how the government should go about it or what taxes should be raised.
