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Israel: Reduction of Deficit and Limitation on Public Spending

(July 30, 2013) On June 13, 2013, the Knesset (Israel’s parliament) passed the Reduction of Deficit and Limitation on Budgetary Expense (Amendment No. 13) Law, 5773-2013 (hereinafter the 2013 Amendment Law). This Law increases the proportion of deficit that can be taken into account by the government in determining the yearly state budget for 2013-2014. It also raises the ceiling on governmental expenses that can be authorized for 2013. (Reduction of Deficit and Limitation on Budgetary Expense (Amendment No. 13) Law, 5773-2013 [in Hebrew], SEFER HAHUKIM [Official Gazette], No. 2398, p. 82, Ministry of Justice website.)

In accordance with the Reduction of Deficit and Limitation on Budgetary Expense Law, 5752-1992 (hereinafter the original law), the state budget may include a deficit amount, subject to a limit defined by Israel’s gross domestic product. The 2013 Amendment Law raises the cap on the deficit that can be calculated as part of the state budget from 3% to 4.65% in 2013 and from 2.75% to 3% in 2014. (Reduction of Deficit and Limitation on Budgetary Expense Law, 5752-1992, SEFER HAHUKIM, No. 1378, p. 45.)

The 2013 Amendment Law also raised the ceiling on the amount of governmental expenses that can be authorized as compared with the cap on such expenses set by the original law. Under the 2013 Amendment Law, this cap has been increased for the 2013 budget year from 1.7% to 2.2% above the amount spent in 2012. (2013 Amendment Law, supra.)

Explanatory notes for the 2013 Amendment Law draft legislation state that the 2013 state budget was expected to be approved at an extremely late date, following the election of the new government in March 2013. The outgoing government had called for early elections because of its inability to reach consensus on the adoption of a budget. The adoption of a budget for the 2013 budget year at such a late stage significantly limited the ability of the newly elected government to make changes in budgetary priorities. (Government Draft Bill [in Hebrew], HATSAOT HOK [Bills], No. 760, p. 314, Knesset website.)

Proponents of the 2013 draft legislation argued that the increases proposed by it were necessary in view of the difficulty of the new government to adjust to the predetermined cap on government expenses due to its late adoption and due to 2012 fiscal problems in Israel’s economy. (Id.)