In a report released last week the IMF suggested that indirect taxes may need to be increased. The IMF noted that the challenge for Israel is to sustain growth and low inflation
The International Monetary Fund (IMF) has called on Israeli government to tighten its fiscal policy faster than planned to keep inflation in check. In a report released last week the IMF suggested that indirect taxes may need to be increased.
The IMF noted that the challenge for Israel is to sustain growth and low inflation while boosting medium-term prospects - in the context of continued global uncertainty, capital outflows from advanced countries, local currency appreciation, and a housing market that is overheating. It has recommended a mix of expenditure and tax actions.
“Fiscal deficit reduction needs to be more rapid than planned,” the IMF said in a report released last week. “The announced fiscal trajectory still leaves monetary policy with too stark a choice between addressing inflation concerns and sustaining competitiveness”.
The IMF also noted in its report that the government’s intention to raise taxes on gas and oil resources is “fully appropriate.” The first use of such receipts should be to reduce public debt, it said.
Israel’s two-year budget proposal calls for spending to increase by 2.7% each year in real terms, with deficits forecast at 3% of economic output in 2011 and 2% in 2012. the IMF noted in its report that “Israel passed through the global recession swiftly, the fruit of decisive policies and strengthened macro financial policy frameworks”.
“In our view, buoyant activity and employment alongside incipient inflation pressures calls for the overall stance of policies to be tightened more quickly than planned. But the onus for the accelerated effort should fall mainly on fiscal rather than monetary policy. This shift in the policy centre of gravity will help to contain inflation, reduce upward pressure on the shekel, and support the new fiscal rule."
