BANK OF ISRAEL Office of the Spokesperson and Economic Information

Press Release
December 8, 2013 Excerpt from the "Recent Economic Developments" to be published soon: Assessment of the fiscal developments since the budget was approved, and their effects on the expected fiscal path
The measures adopted by the government within the framework of approving the budget for

2013 and 201

strengthened the credibility of !srael"s fiscal policy, and contributed to an

improvement of !srael"s standing in financial markets#

The budget deficit in 2013 is expected to be less than 3#$ percent of %&', markedly lower than

the deficit target of #($ percent of %&'#

The below)target deficit reflects expenditures lower than the approved budget, and high tax

revenues, most of which were exceptionally large one)off revenues#

The budget deficit in 201 is expected to be similar to the target set in law, 3 percent of %&'# !f the government"s proposal to cancel the income tax rate increase, which was set to come into

effect in in the beginning of 201 , alongside a similar reduction in the expenditure ceiling, is accepted, the government is expected to meet the deficit target in 201 , but it will be more difficult to do so in following years#
*eeting the declining deficit targets set in law for 201$+1, re-uires additional policy measures

.increased taxes, or reduction of the expenditure ceiling and a corresponding contraction of the government"s expenditure programs.valued at 1 percent of %&' in 201$ and a cumulative more than 2 percent of %&' by 201,#
!f the ad/ustment of the budget re-uired to meet the deficit target is carried out solely by

reducing expenditures, primary civilian expenditure per capita will not increase until 201,, compared with its current level#
'resenting fiscal data based on the new national accounting methodology adopted by the

0entral 1ureau of 2tatistics highlights the extent to which !srael is characteri3ed as a country with low public expenditure and tax burden# 1ased on the new calculations, as with the previous ones, the current general government deficit in !srael is high, compared with other countries#

Bank of Israel - Assessment of the fiscal developments since the b d!et "as approved# and their effects on the e$pected fiscal path

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&he Bank of Israel's periodic fiscal s rve( e$amines b d!et performance developments in )*+, and presents an pdated forecast of fiscal a!!re!ates for )*+- and the remainder of the decade. &he s rve( also presents revised fiscal data# based on the ne" national acco ntin! methodolo!( adopted b( the /entral B rea of Statistics# "hich hi!hli!ht the e$tent to "hich Israel is characteri0ed as a co ntr( "ith lo" p blic e$pendit re and ta$ b rden. &he anal(sis in the s rve( indicates that the fiscal ad1 stment pro!ram instit ted b( the !overnment in parallel "ith approvin! the b d!et for )*+, and )*+- made it possible to halt the increase in the deficit# and to red ce it to a level of abo t , percent of 23% in )*+-. &his s ccess contrib ted to stren!thenin! markets' tr st in the !overnment's b d!etar( control# and to a decline in (ield spreads bet"een Israel and other developed markets. &he s rve( indicates the !reat importance of the !overnment's carr(in! o t of the re4 ired ad1 stments so that the deficit and its e$pendit re levels "ill be in line "ith the tar!ets set in la" in the (ears follo"in! )*+as "ell. &his is beca se the deficit is still at a hi!h level in comparison "ith other co ntries5a level "hich does not allo" a s stained decline in the debt to 23% ratio5partic larl( as this deficit level has been reached "ith the econom( at hi!h emplo(ment and activit( levels# "hich s pport a lo" deficit. Based on )*+, b d!et performance data to date# it appears that the deficit in the !overnment b d!et this (ear "ill be smaller than ,.6 percent of 23%# m ch belo" the ceilin! of -.76 percent of 23% that "as set "hen the b d!et "as approved at the end of 8 l(. &he lo"er than pro1ected deficit reflects a combination of three components9 e$pendit re belo" the approved e$pendit re ceilin! d e to partial e$ec tion of several b d!et sections# e$traordinaril( lar!e5abo t NIS 7 billion5one-off ta$ receipts# and an increase in 23% estimates b( the /entral B rea of Statistics "hich red ced the deficit to 23% ratio b( appro$imatel( one-4 arter of a percenta!e point. &he deficit in )*+- is e$pected to be , percent of 23%# similar to the tar!et set in la". &he development of some of the e$pendit re items in the b d!et# notabl( interest pa(ments# "ill apparentl( enable the !overnment to meet the deficit tar!et in )*+- despite the cancellation of the increase in income ta$ rates# "hich is e$pected to c rtail reven es b( NIS ,.: billion. An anal(sis of the e$pected path of the deficit and debt from )*+6 and on"ard indicates that meetin! the deficit tar!ets set in la" ;the !reen line in the Fi! re< "ill ens re a contin ed decline in the debt to 23% ratio to 7* percent b( )*)*. It "ill th s contrib te markedl( to the credibilit( of Israel's fiscal polic( and to the red ction of the !overnment's interest e$penses.1 =ith that# attainin! these tar!ets "ill re4 ire the !overnment to carr( o t "ide ran!in! polic( steps in the comin! (ears. &he estimate of !overnment e$pendit res in )*+6 is NIS 6 billion !reater than the e$pendit re ceilin! set in la". &his is based on the plans adopted to date# and rel(in! on the ass mption that from no" ntil the be!innin! of )*+6 the !overnment "ill not approve additional plans "ith si!nificant b d!etar( costs "itho t red cin! other e$penses. &his !ap is e$pected to contin e to e$pand in the follo"in! (ears. F rthermore# even if the !overnment "ill red ce its planned e$penses to the level mandated b( the ceilin!# additional steps "ill be re4 ired5additional ta$es or an additional red ction of e$penses5at a total of abo t NIS 6 billion in )*+6# so that the deficit "ill be ).6 percent of 23%# in accordance "ith the tar!et set in la". In this scenario# too# the !aps "iden in follo"in! (ears# since "itho t the ad1 stment# the deficit is e$pected to remain set at a level of abo t , percent of 23% ;the bl e line in the fi! re<# "hile the deficit tar!ets decline each (ear. A!ainst this back!ro nd# the cancellation of the decision to raise income ta$ rates# as proposed b( the !overnment# "ill re4 ire decisions on alternative polic( meas res "hich "ill increase reven es or red ce !overnment activities. In the s rve( it "as fo nd that# amon! other thin!s# if it is decided to carr( o t the entire ad1 stment ntil )*+: "itho t an( increase in ta$ rates# real primar( civilian e$pendit re per capita "ill not rise# compared "ith its c rrent level.

1 &his forecast is based on an ass mption of avera!e !ro"th of ,.+ percent in the remainder of the decade. 3etailed !ro"th forecasts b( the Bank of Israel for the comin! t"o (ears are p blished separatel( at the end of each 4 arter.

Bank of Israel - Assessment of the fiscal developments since the b d!et "as approved# and their effects on the e$pected fiscal path

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Bank of Israel - Assessment of the fiscal developments since the b d!et "as approved# and their effects on the e$pected fiscal path

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