Just a few days ago, Minister of Finance Bezalel Smotrich said in the Knesset Finance Committee, "I am currently looking for the formula that will bring about a situation in which the state will have maximum gain from taxation of the banks, in a way that will not simply mean more revenue for the public purse, but will enable us to earmark a defined amount of it for the relevant target groups." "Globes" has now learned what the minister had in mind.
The Ministry of Finance is examining the use of the planned taxation on the banks super-profits to finance a fund for subsidizing mortgages for households that have been hard hit by the rise in interest rates. Under the proposals, such households will receive grants at varying rates. It is not clear, however, when the plan will go into effect, if at all, and the Ministry of Finance professional staff have a long list of reservations about it.
Ministry of Finance officials admit that no precise work has yet been done on the initiative, and some even oppose it. The Budgets Division and the Israel Tax Authority have put forward various difficulties that could arise from special taxation of the banks, and the Accountant General’s Department has reservations about subsidizing mortgages.
The Budgets Division fears that the banks will make up for a new tax in different ways, such as through stricter credit terms for those with low credit ratings. The Ministry of Finance is trying to find out how far the Bank of Israel will insist that the banks do not give with one hand and take with the other.
The aid fund for mortgage borrowers is still largely a raw idea. Although Smotrich claimed that the Ministry of Finance was "very close to putting together a formula", it seems that there are more questions than answers about the matter. How will those entitled to a subsidy be selected? When will the fund be set up? How will the mechanism work? And is it not liable to fuel inflation, since making loans more expensive is the point of monetary tightening, to curb private consumption? In a week and a half’s time, senior Ministry of Finance and Bank of Israel officials will try to make progress on the matter, and will probably form a team that will try to provide answers.
Firing in all directions
Smotrich is determined to fight the banks, and the solutions that the Budgets Division has come up with do not satisfy him. The Budgets Division has suggested solutions to do with transparency, and also the idea that Smotrich presented in the Knesset Finance Committee, of a tender for a "default deposit", whereby the bank that offers the best terms will receive high exposure on its competitors’ websites. Smtorich has adopted the idea, but is demanding that the people at his ministry should bring out heavier artillery.
At the moment, Smotrich is shooting off ideas in all directions, in the hope of scoring a hit somewhere: taxing super-profits; setting up a mortgage assistance fund; a deposits tender; state-guaranteed mortgages; and even bringing in foreign banks. For all his declarations, there is still no solid plan for any of these proposals.
In the end, Smotrich’s main aim is to deal with what started the uproar in the first place: to make the banks raise interest rates on deposits just as they have raised them on loans. If they do that, he will probably forego complicated legislation. But that will not help the weaker sections of the population, whose main problem is their bank overdrafts.
Published by Globes, Israel business news - en.globes.co.il - on July 5, 2023.
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