Bank of Israel Governor Prof. Amir Yaron sent a letter to Prime Minister Netanyahu on Wednesday ahead of tomorrow's budget meeting, calling on the Governor to announce additional restraining measures, such as raising VAT, canceling credit points for parents with children up to age 3, or other measures expected to generate revenues of a similar amount.
This is against the background of reports last night that the prime minister is refusing the Ministry of Finance's proposal to raise VAT by 1%. Regarding the addition of credit points 0-3, the Prime Minister asked for another discussion with the Ministry of Finance.
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"I believe that in order to strengthen confidence in the Israeli economy and maintain its robustness, comprehensive budgetary adjustments must already be decided in a binding and transparent manner that include real steps to reduce expenditures and/or increase revenues in the 2024 and 2025 budgets, and implement a substantial part of them immediately," the Governor writes.
"Moreover, in view of the fact that the increase in the defense budget is expected to be persistent over the coming years, it is right that these adjustments be made at the base of the budget and will also be of a constant nature. In order to ensure a rapid return of the economy to a path of growth, thereby reducing the debt to GDP ratio, adjustments should be focused on items with little impact on economic growth. The financial scope of the budgetary adjustments must be determined in such a way as to lead to a path in which the debt to GDP ratio declines after the war and converges within a reasonable period of time to the pre-war environment."
"The increase in the defense budget is expected to be constant", documentation of the activity of the forces in the Gaza Strip, photo: IDF Spokesperson
The Governor notes that according to the working assumption adopted by the Bank of Israel and the assessments formulated, the annual permanent increase in the budget is expected to be about NIS 30 billion. This estimate reflects an annual increase in defense expenditure of about 1% of GDP, equivalent to about NIS 20 billion, plus an annual cost of about NIS 3 billion for the Takuma Administration and an increase in interest expenses on government debt totaling NIS 7 billion.
"Until the multi-year outline is formulated, the minimum rate of increase in defense expenditure must be defined in the immediate term, which is likely to be required under any scenario, and the budgetary adjustments derived from it must be formulated. In light of the short scope on the expenditure side of the budget, without taking steps to permanently increase revenues such as raising VAT, canceling credit points for parents with children up to age 3, or other measures that are expected to generate revenues of a similar amount, I do not see how these adjustments can be made. The phrase 'no free meals' in the context of financing the constant increase in spending is more true than ever."
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