Last updated: 1 July, 2012

Israeli government approves new deficit plan

The Israeli government on Sunday voted to go ahead with plans to raise the 2013 budget deficit target to three percent of GDP, despite objections from the governor of the central bank.

The weekly cabinet meeting agreed to seek to fast-track the plan through parliament with a view to passing it into law as early as possible, the government said in a statement.

It added that a ceiling of 2.75 percent would be set for 2014, falling to 1.5 percent in 2019.

Speaking to reporters before the meeting, Prime Minister Benjamin Netanyahu said the rise would still leave Israel within a tighter deficit band than most European countries.

“This is the target, the European standard of three percent … It seems to me that in Europe, Germany is perhaps the only country that is below this,” the premier said.

“I think that this is the right dosage,” he added.

On Thursday, Bank of Israel governor Stanley Fischer warned that the move could force interest rates up. “It’s not good. It’s not reasonable,” he told an economic conference at a Dead Sea hotel.

“Such policy will cause only inflation and economic instability,” he said.

“I do not believe that the monetary committee will be able to maintain its policy of interest at the present level if fiscal policy does not follow a sustainable path.”

Arriving for Sunday’s cabinet meeting, vice prime minister Silvan Shalom, a former finance minister, told reporters that the government and Fischer had different priorities.

“He is committed first and foremost to price stability, only after that to employment and growth,” he said.

“We as a government have to look at the broader picture. We have to know that unemployment is already on the rise … so we are obliged to look both at growth and employment alongside price stability and not just look at inflation.”