That fiscal cliff – not just an American issue

The world is focusing on America’s looming budget crisis. However, where Washington leads, others have followed. Greece is the classic example. Has Israel also joined the queue?

Yes, Israel with its high growth of 3%, this year and next. Israel, the holy land whose economic miracle economy is seen as a panacea for others like Japan to copy. And it is less than a month ago that S&P reiterated Israel’s A+ rating despite the failures to agree on a fiscal budget for 2013.

The main problem for the Israeli government is its propensity to spend. Tax revenues have moved up a couple of percent compared to 2011, not bad during a global slowdown. However, expenditure is up more than 8%. The net result is that the budget gap has increased 50% in ten months.  That is a dangerous ledge to negotiate around.

Part of this deficit could be plugged by a one-off windfall in changing the tax laws for what are known as “trapped profits“.  2014 will see the start of new on-going revenues from gas exploration. In the meantime, the picture is looking worrisome.

In February 2013, Israelis will go to the polls. It will be a shame if the current government fails to act now and leaves the dirty work to its successor. Such a lack of courage merely risks throwing away gains of the past for the sake of a short-term political goal. Will the electorate wish to recognise the folly?

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