"I have said all along the way, together with all the senior officials at the Ministry of Finance, that equal sharing of the burden is a basic, vital rule, from an economic point of view as well." Behind this forthright statement stands Ministry of Finance director general Shlomi Heisler, who puts a high price tag on failure to change the situation. The interview with him took place in Akko (Acre), in the course of the "Talking North" event, a week of special coverage from towns and agricultural settlements in northern Israel.
Talking to "Globes" reporter Asaf Zagrizak, Heisler spoke of the high cost of not conscripting young men from the haredi (ultra-Orthodox Jewish) population, on the tough measures required in the upcoming budget, what should really be done for residents of the north, and how foreign investors can be reassured and fiscal stability can be maintained.
Tens of thousands of people have been evacuated from their homes here in the north, whose settlements have become ghost settlements, but there’s a feeling that those in the south are receiving more aid.
""I think that, following the government’s decision, the equation has changed. It’s true that, at the beginning, most of the attention was paid to the south. We had to find solutions for people who had undergone shaking experiences. Two weeks ago, the government passed a decision focusing attention on the north. Altogether, we’re talking about over NIS 6.5 billion."
How is this money supposed to be applied?
"The decision relates to a number of stages: NIS 1.2 billion immediately, mainly for residents of the confrontation line evacuated from their homes, to help them deal with difficulties in areas such as employment and education. With this week’s appointment of a project manager for the north as well, this time we are set on doing everything to realize the government’s decisions and to transfer the money immediately. Including allocations for security, it’s a matter of NIS 2.5-3 billion immediately. We will also allocate a further NIS 3 billion to rehabilitation.
"The residents of the north are today’s pioneers. These are people who in the end want to return to their homes and continue to live here. They are worthy of all the government’s support and of all respect. I shall work to ensure that this doesn’t remain at the level of government decisions, but is actually carried out. The aim is to put in place as many growth engines as possible, and to bring the residents back."
There are businesses that fear that they will be required to repay grants. Can you allay those fears?
"I presume that people are looking back to the pandemic period, and so they’re anxious. Then, employers received more than was due to them, and were required to pay it back. Today, the mechanisms of the compensation programs don’t allow those errors, and I think that they can rest easy.
"This money is meant to give businesses breathing room and help them recover. As long as a business report truthfully, this is the money that the state gives them. We want to invest more money, beyond the compensation, in order to make this region flourish. The state believes in this money and is giving it, and incidentally expanding the compensation tracks from time to time."
The conversation with the director general of the Ministry of Finance took place shortly after the dramatic ruling by the High Court of Justice obliging the state to conscript yeshiva students and stop financing the institutions of those that are not drafted.
It’s impossible not to ask about the High Court of Justice ruling on conscription and its economic consequences.
"All along the way, I and senior Ministry of Finance officials have said: equal sharing of the burden is a basic and necessary rule. On the economic plane, failure to conscript a large section of the population while calling up reserve soldiers instead of them is very significant. Everyone has to play their part. That’s my moral and economic position. If we don’t do that, the economic burden will be very heavy."
Heisler expresses a forthright stance on the matter, and even specifies numbers. "If we’re talking about a situation of drafting thousands of reserve soldiers, it’s a matter of several billions, perhaps over NIS 10 billion on reserve days. It very much depends on the scenarios and the duration of the war. The immediate impact of reserve duty days, let’s say for several months by tens of thousands upon tens of thousands of reservists, translates into many billions.
"Besides that, there’s the economic impact of those people not being at work. It’s a very heavy economic burden, and this equation certainly needs to change."
And what has been the reaction at the political level?
"I think that, in principle, the political level that I deal with, such as the minster of finance, certainly believes in a general duty to be conscripted. He has said so more than once. It’s a question that needs to be referred to the politicians."
Reassuring the foreigners
Against a background of a complex security situation that has continued for nine months, and the swelling fiscal deficit, the question arises of how to reassure investors in general, and foreign investors in particular. In this context, only recently it was reported that Intel was freezing some of the work on expanding its Kiryat Gat fab. The company and the Ministry of Finance tried to damp speculation and to explain that it was a matter of internal considerations at the company arising from global factors.
Are you worried about investor flight? We have seen the recent reports about the delays in construction at Intel.
"In the case of Intel, it’s not a matter of investor flight but of global issues. The foreign investors remain here at the moment, and we, as a government and as a country, have to give them confidence. If we do that, the investors will be calm and will stay here.
"We have recently been at several international conferences, including an OECD conference, and the message is that the Israeli economy is doing surprisingly well despite the circumstances. It’s position is even good, considering these circumstances. It’s understood that, because of the war, the deficit has grown.
"In addition, the message is that we as the government need to retain the safety cushions that we had in the past, and that we are currently exploiting. That’s our task at the moment. If, Heaven forbid, something more dramatic happens, we’ll know how to deal with it."
We have seen several reforms put forward by the Ministry of Finance that have failed to clear the political hurdle, such as a travel tax on electric vehicles and even raising taxes on cigarettes at duty free shops, What sort of message is that to investors?
"We’re very unhappy about the fact that some of the measures have not yet passed. I have personally spoken about that several times. That things are stuck in the Knesset finance Committee is something I don’t like. I endeavor not to become involved in the political side, but these things need to pass, and quickly. Any delay in them is not good for the State of Israel. In the end, responsibility will carry the day, and we’ll pass these things. But the fact that some matters are still frozen and have not passed the Finance Committee is certainly a concern for us and something we have warned about."
No avoiding tax increases
Heisler adds that the greater challenge is the 2025 budget. "There, we’ll need the support of all the coalition members. If we want to keep the investors calm and keep the State of Israel’s economic position strong, we shall certainly have to take substantial steps that must be passed. I believe that the sense of responsibility will win out and that we’ll do it."
What are the reforms in the 2025 budget?
"The biggest reform is to maintain fiscal stability, strange as that might sound. We will of course also introduce structural reforms in the areas of infrastructure, real estate, the public service, and more. But the great challenge is to maintain fiscal stability and preserve a falling debt to GDP ratio and a narrowing deficit. The main effort will be invested in reducing the expenditure side and growing the revenue side.
"The numerator indicates a deficit of 5.2% of GDP next year, and we want to reduce it in the coming years. That’s vital for the economy and from the point of view of investors. If we add to the basic figure the defense spending that will in all probability rise, we have to pass a very challenging budget.
"We’ll also have to talk about the revenue side - taxes. Besides this, we must see to it that there are growth engines, and we’re already putting money into high-tech and infrastructure, certainly into all aspects of rehabilitating the north and the south. I say it candidly - it will be a challenging budget."
Does that also include tax hikes?
"It’s simple mathematics. If we want to reduce the debt to GDP ratio, we have to reduce the deficit and increase revenues. The revenue side is always taxes.
"We will of course apply that to taxation that doesn’t hinder growth so much, and more to creating greater equality and to places where the productive sector will be less harmed. As far as I’m concerned, it’s not possible to come along and say that only the productive section of the population will bear the burden
"We will of course talk about cutting government ministries. Leaving in place ministries that are hardly needed is certainly unthinkable. But our plan will probably weigh on the public. I believe that, in the end, it will lead to the desired result for the country."
Discussion of the productivity gap between Israel and the OECD goes along with discussion of the infrastructure gap. Will you deal with these matters too in the next budget?
"As I said, some of the changes that we seek to introduce into the budget are more money for infrastructure and for productivity generators, whether in industry or in employment or in digitization.
"When I talk about encouraging employment, it’s not just in the sense that people should go out to work, but also in what professions, and here we certainly need to bring those sections of the population to a position in which they are accepted for high productivity jobs.
"I spoke at the beginning about there being structural changes in employment and infrastructure in the 2025 budget. These are two anchors that we would even like to add money to, and I very much hope that we’ll succeed."
Published by Globes, Israel business news - en.globes.co.il - on July 1, 2024.
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