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Israel: Deficit Reduction Law Passed

(Nov. 8, 2012) On July 25, 2012, the Knesset (Israel’s parliament) passed the Reduction of Deficit and Limitation of Budgetary Expenses (Amendment No. 12) Law, 5772-2012. The amended Law provides caps for public spending and limits the level of Israel’s state budget deficit based on a percentages of its GDP, as follows:

2013: up to 3%;

2014: up to 2.75%;

2015: up to 2.5%;

2016 : up to 2%;

2017-2018: up to 1.5%; and

2019 and each year thereafter after: up to 1.5%. (Reduction of Deficit and Limitation of Budgetary Expenses (Amendment No. 12) Law, 5772-2012 [in Hebrew], SEFER HAHUKIM (S.H.) No. 2374 p. 591 (Aug. 2, 2012), Knesset website; Reduction of Deficit and Limiting of Budgetary Expenses Law, 5752-1992, S.H. No. 1378 p. 45, as amended.)

Explanatory notes on the draft bill of the original 1991 Law stated that if the situation of having a high rate of deficit as a percentage of the state GDP (at that time expected to be 6.2% of Israel’s GDP) persisted, it “could endanger economic stability and harm the development of growth and increased employment.” (HATSAOT HOK No. 2082 p. 30 (Oct. 23, 1991).)