Israelis are set to face a “double whammy” in 2014, according to the Bank of Israel. In a statement, the BOI said that in order for the government to remain within the deficit limits it set for itself – 2.5% of GDP in 2015 and 2% of GDP in 2016 – budget cuts wouldn't cut it. Tax increases would be needed as well.
“In order to ensure that markets and investors remain confident about the Israeli economy, we must constantly reduce the budget deficit,” the BOI statement said. “In order to avoid an aggressive increase in the tax burden, the Bank of Israel supports a process that will prevent the increased outlays of the government and enhance economic growth.” However, if outlays are not sufficiently cut, Israelis may face tax increases, the Bank said.
“The growth rate set by the government and the outlays for services sharpen the challenges in determining the priorities in the state budget,” the Bank said. Due to spending requirements and commitments, the coming due of bond payments and interest payments, and the needs of the defense establishment, “some of the government's spending plans will have to be altered or canceled.”
This is likely to be a very difficult process, the Bank said, “so it might be preferable for some of the shortfall to come from taxes.”