JERUSALEM: Israel’s cabinet yesterday approved the 2013-2014 budget draft that will slash spending and hike taxes this year and next to rein in a growing budget deficit.
Cabinet ministers approved the 17-month state spending package 21-1 with cuts of at least 25bn shekels ($7bn) between August 2013 and the end of 2014. Defence spending was cut by 3bn, down from a proposed 4bn.
Finance Minister Yair Lapid had warned that failure to implement public spending cuts could cause an economic collapse. Tax increases starting in 2014 are expected to bring in some 13.4bn shekels. Lapid said the vote was “a first stage in changing peoples’ lives in Israel”.
The budget will appease the Bank of Israel, which has called for a return to fiscal responsibility, but has angered middle-class voters whose strained household finances were a major issue in January’s election.
The central bank took financial markets by surprise on Monday with a rare between-meetings interest rate cut to halt the shekel’s rally and to support the weakening economy.
Israel’s budget deficit was 4.2 percent of gross domestic product (GDP) last year - more than double its initial target -due to overspending by the previous government and lower-than-expected tax revenues as the economy slowed.
Reuters
