Israel is in the process of an economic recovery that accelerated in September, but this is only the beginning, and there are more challenges ahead, Minister of Finance Yuval Steinitz told a gathering of the Friends of Tel-Aviv University, headed by Cellcom CEO Amos Shapira. In an address entitled "The Israeli Economy Is the Crisis Behind Us?", Steinitz reviewed developments in the economy, and cited UK investment bank Barclays Capital in saying that Israel's economy was recovering more strongly than any other.
"There is room for cautious optimism," Steinitz said, "but it must be emphasized that we are not at the end of the recovery but only at the start. Unless we preserve the conditions that have brought about the improvement, we are liable to get into difficulties." The minster of finance said that the government's guiding principle during the crisis was that the crisis should be exploited to promote Israel's international standing, by taking the long-term view.
"While in Western countries there was a perception that the economy was sinking and everything was crashing, we dealt with things differently," Steinitz said. "We passed a two-year budget to cope with the crisis. If the feeling during the crisis was that it was necessary to think of the short term and do everything to save the sinking ship, we passed a two-year budget. In addition, we set fiscal deficit targets for five years ahead." Steinitz hinted that the actual deficit this year would be lower than the 6% of GDP target.
The Israel economy grew by 1% in the second quarter of this year, after two successive quarters of negative growth, and thus officially emerged from recession. The government imposed taxes in order to meet the deficit target, such as the drought levy on water and the rise in duties on fuel, while Western governments eased taxes. However, Steinitz promised that, in 2011, when elsewhere in the world taxes start to rise to deal with higher deficits, the opposite will happen in Israel.
"Most countries will raise taxes from 2011, and we will lower taxes, including companies tax, from 2011 to 2016," Steinitz said, explaining that pumping money into the Israeli economy would not have helped it.
Since Steinitz entered office, he has managed to get into a confrontation with the Bank of Israel, headed by Stanley Fischer, on the issue of salaries at the bank. Yesterday, Steinitz sounded quite different, more conciliatory, and heaped praise on Fischer. "Relations between the Ministry of Finance and the Bank of Israel are improving all the time. Stanley Fischer is an excellent governor," he said.
As reported in "Globes", the Ministry of Finance is promoting a plan to sell the state's stakes in Bank Leumi (TASE: LUMI) (11%) and Israel Discount Bank (TASE: DSCT) (25%). Steinitz said that the ministry was examining various ways of completing privatization of the banks, even without the formation of controlling interests in them, and that "in 2010 we will privatize both Discount Bank and Bank Leumi."
Published by Globes [online], Israel business news - www.globes-online.com - on November 2, 2009
© Copyright of Globes Publisher Itonut (1983) Ltd. 2009