By Alex Traiman/JNS.org
Click photo to download. Caption: Stanley Fischer, the Governor of the Bank of Israel, leaves after a meeting at the Prime Minister’s Office in Jerusalem, March 17, 2013. Fischer, who will leave his position in a few months, has stewarded the Israeli economy through an era of stability amid a global crisis. Credit: Yonatan Sindel/Flash90.
While the Israeli economy
has managed to steadily weather the global financial crisis of recent years, a
growing budget deficit now threatens to disturb the relative economic stability
of the past several years.
Freshman Knesset Member and
newly minted Finance Minister Yair Lapid must now attempt to raise government
revenues by increasing taxes and slashing expenditures in order to close
sizeable gaps in the 2013 budget.
The uncomfortable measures,
and remaining budget shortfalls, leave many worrying about the state of the
economy, just months before economic oracle Stanley Fischer leaves his post as
longtime governor of the Bank of Israel.
“The state of the economy is
good certainly as compared to other advanced economies,” Edward Offenbacher,
Director of Monetary/Finance Division of the Bank of Israel’s Research
Department, told JNS.org.
Offenbacher has worked at
the bank for more than 30 years, following a stint at the U.S. Federal Reserve.
Click photo to download. Caption: New Israeli Finance Minister Yair Lapid, who faces a budget deficit as a primary challenge for the current Israeli economy. Credit: Yesh Atid Party.
“We’re not growing as fast
as we were in the period of 2004 to 2010,” he said. “But we’re doing as well as
could be expected based on the circumstances in the world. By and large, our
situation is better than in almost all comparable countries.”
According to Offenbacher,
there are two major components to the Israeli government’s budget deficit. The
first is that the amounts of tax revenues the government collected in 2012 were
significantly lower than initially forecasted.
The second component is that
the 2013 budget has significant increases in expenditures, including
commitments to increase wages for teachers and doctors. Additional expenditures
were made based on the recommendations of the Trachtenberg committee which
attempted to ease economic burdens on young working couples, following the
social protests of the summer of 2011.
“The government made a lot
of commitments for expenditures which were undertaken without considering the
overall budget implications. Plus, in the defense ministry there were some
overruns. So the expenditures were higher than planned,” Offenbacher said.
In order to balance the
budget, Lapid has started warning the public to prepare for a number of cuts
that will need to be adopted. Several pundits have referred to the cuts as
Yet according to
Offenbacher, the word austerity may be inappropriate as the situation in Israel
is not nearly as alarming as the financial crises currently plaguing many
countries in Europe.
“The magnitude of the
measures needed to bring the budget back into proportion are far less than
we’ve heard about in European countries, like Ireland or Greece,” Offenbacher
Lapid is scheduled to meet
with Fischer in the coming days to discuss his plan to balance the budget. It
is being reported that in addition to sweeping cuts and planned tax increases,
Lapid will seek Fischer’s support to loosen the …read more