After refraining from attacking Governor of the Bank of Israel Karnit Flug since he became Minister of Finance a year ago, Moshe Kahlon brought out his brass knuckles today. He accused the Bank of Israel of systematically misleading finance ministers by inflating the budget deficit forecast.
Kahlon, who appeared at an Israel Bar Association conference in Eilat, was asked by journalist Rina Matzliach about the Bank of Israel's criticism of the buyer fixed price plan that he had initiated. "I want to ask you what my attitude should be," Kahlon answered. "I began my job, and I began to compose the 2015-2016 budget. The Bank of Israel told me, 'The Minister of Finance won't get the budget through without NIS 8 billion more in taxes.' I almost believed it, and it turned out that my predecessors also believed what they were told.
"I heard what they said. I discussed it with the Ministry of Finance heads, the Israel Tax Authority, the State Revenue Division - there was no need - none at all. They pressed me again to raise taxes. I checked it out - it wasn't necessary, so I decided not to raise taxes. Then they hit me with, 'The budget deficit will rise to 3.4%!' I didn't raise taxes. I cut taxes by NIS 7 billion. She (Flug, A.B.) made a NIS 15 billion mistake. I cut VAT by NIS 5 billion, corporate tax by NIS 2 billion, plus the NIS 8 billion in taxes hikes I refused to make - and the deficit ended at 2.1%. Now she says that if I don't do A, B, and C, the 2016 deficit will be 3.5%. The quarterly deficit now is 2.2%.
"When I cause a deficit, I put the Israeli economy at risk, but on the other hand, when I cut spending, I harm Israelis - I harm welfare, health, and education. I decided to expand the budget for civilian agencies. The army will get what it should, and now we said, 'Let's start taking care of health and education.'"
When Kahlon was asked, "What are you saying - that she doesn't understand economics?", he answered, "She understands very well. I'm probably the one that doesn't understand. I'm a politician. On the other hand, when we began the coalition agreement, I sat down with the prime minister and told him, 'Look, in my campaign, I talked about bank reform. We have to get more banks here.' She told the prime minister we didn't need more banks. Thank God, she was convinced, and said we needed more banks. She said there was no need to reduce the capital adequacy requirements for small banks. Thank God she was convinced, and now we're lowering them. She said we mustn't have depositors' insurance. Thank God she was convinced, and we're creating depositors' insurance. So I hope that here, too, she will see the figures and be convinced. After all, the figures don't lie."
Asked whether a new bank will be created, Kahlon answered, "Certainly. We have an agreement. The Supervisor of Banks promised that when the credit card companies are separated within three months, there will be a bank permit. Anyone, any entity with the financial capabilities and banking infrastructure can get a bank permit." Asked whether bank charges would fall, he answered, "I'm a great believer in competition. If there's competition, things will work out. If there's no competition, you'll see the salaries there skyrocket, profits go up, and NIS 17-18 billion in bank charges."
Asked about his opinion of reports of mass resignations among the bank executives following the salary restrictions, and of the senior executives saying they will go elsewhere, he answered, "Where will they go? Who will pay them? Overseas? Look at the accomplishments of all our monopolies overseas. They can't make a dollar overseas - not one. They take the money from here, do deals overseas, lose money, and come back here, because there's real competition there, and real regulation of monopolies."
The Bank of Israel did not respond to Kahlon's remarks, but in response to past similar criticism, Bank of Israel sources said, "The Governor of the Bank of Israel did not call for tax increases in 2015, and as is known, the problem in 2016 was solved by raising the deficit target. The numerator at the Ministry of Finance itself is showing the depth of the pit the government will have to deal with in 2017."
Published by Globes [online], Israel business news - www.globes-online.com - on April 6, 2016
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