Jul.16, 2012 | 8:24 AM–The government decision to double the budget deficit target to 3% was at the center of talks between Finance Ministry officials and the Standard & Poor’s delegation, during its annual visit to Israel early this month. What the delegation heard in meetings with treasury budget director Gal Hershkovitz, accountant general Michal Abadi-Boiangiu and Finance Minister Yuval Steinitz, was apparently different from what it heard from Israel’s political echelon.

Hershkovitz and Abadi-Boiangiu had difficulty defending the decision to raise the target figure, and cast the blame on the politicians. The renewed cost-of-living protests came up for discussion, as did the fact that 2013 will likely be an election year.

In the past Hershkovitz said the deficit target “adheres to the ‘reasonability test’ in existing conditions,” emphasizing the importance of its implementation. But like Bank of Israel governor Stanley Fischer, he expressed concern that it would be hard to react to such a deficit level if the economy goes into a nosedive.

Hershkovitz’s worries were reinforced when told by the delegation that an actual rise in the government deficit would necessitate a re-examination of Israel’s credit rating. The political echelon, however, tried to justify the decision by citing the country’s strong economy and a declining deficit trend in the long term.

Israel’s growth target remains high compared with those of other countries, said Steinitz, and remains committed to a 60% debt-to-GDP ratio target.

But yesterday macroeconomists opined that a subtly worded statement by S&P – that the government deficit is being closely watched and might undermine Israel’s debt rating – could be useful to all sides. Steinitz and Prime Minister Benjamin Netanyahu are agreed that taxes must be raised to stay within the expanded 3% deficit target, and such a statement would help them claim they haven’t any choice…Read More>>

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