BREAKING NEWS

Netanyahu sides with Treasury on curbing budget growth

By GLOBES

DECEMBER 25, 2013 19:12

Prime Minister Binyamin Netanyahu has sided with the Finance Ministry on growth in the state budget, Globes has learned.

On Wednesday, Netanyahu decided to adopt the changes that the ministry proposed in the formula governing public spending growth with the aim of sharply curbing that growth. As a result, the state budget in the coming years will grow at a rate of 2.5-2.6% only. The growth rate would have been 4% under the existing formula.

Until 2010, public spending grew in line with the rate of growth of the population. That year, however, the Finance Ministry, the Bank of Israel and the National Economic Council decided that the rate of growth of government services had to be in line with economic growth, but that it also needed to accord with a falling ratio of public debt to GDP. It was therefore decided to introduce a formula governing total public spending consisting of the desired level of debt (60% of GDP) divided by the current level (68%), multiplied by the average rate of growth in the previous ten years. This formula means growth in the state budget of 4% in 2013 and 2014, which is a higher rate than the current rate of growth of GDP.

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