Speaking at the 2014 "Globes"-BDO Ziv Haft Capital Market Conference today, Ministry of Finance director-general Yael Andorn said, "We are in the throes of preparing the 2015 budget. This is a difficult challenge. In 2013-2104 we maintained fiscal responsibility. In 2015 too, we will maintain responsibility, and we will give expression to the government's order of priorities in the budget, on both the taxation and the expenditure sides. The defense budget is part of the whole cake. It sounds obvious, but in the end this budget is part of the cake. If we want to increase the defense budget, this is at the expense either of taxes or the budget as a whole. We think that a larger share of the budget should go to civilian services rather than to defense, and we will not raise taxes."
Earlier in her remarks, Andorn spoke about regulation. "My view of the government's place in the capital market is that the government has a central role to play in setting the rules of the game for the market. True, each player maximizes his interests, but when there are savers in the market, the regulator's responsibility is to ensure that the money and the market are managed correctly. It's hard to gauge the right dose of regulation, from a completely free market without game rules to detailed and individual regulation. There's a fine line between setting the rules of the game and crass intervention.
"Over the past few years, there has been considerable development in the capital market. It's much more sophisticated than in the past, and regulation has adapted itself to the market. Regulation has to provide a response where players in the market can't look after their own interests. Competition works, but not always, and where the government sees that intervention is necessary, regulation has to be applied. The government should not determine how companies operate, but it should set the right game rules. The committee on debt arrangements is intended to draw up rules in this market.
"The main aim of this committee is to ensure greater certainty in debt arrangements. This is important when it comes to pricing and allocation of credit, and leads to more correct behavior. In order to create certainty we determined a method that makes for maximum certainty when a company fails to meet debt payments. It starts from the point at which the company identifies future difficulties; this is a discrete and voluntary stage. The idea is to appoint someone who, within 60 days, will formulate a rescheduling of debt, and then go to the creditors to ask for an arrangement. There has to be a period in which an arrangement can be formulated discretely.
"The second stage is that of actual financial difficulties. What financial difficulties are for a company has to be defined. When a company gets into this situation, the creditors will be able to appoint an observer on their behalf to oversee the company's activity. The third stage is when a company fails to pay its creditors. In this situation, a special manager will be appointed to the company to whom management powers will be transferred. We presented two possibilities. This is the first of them. The second is that the company will be obliged to turn to the court for a process the end of which is a settlement or insolvency. This stage defines the rules of the game, whereby both the company and the creditors know what will happen if the company does not pay its debts. They will have an interest in reaching a settlement before the doomsday solution."
Andorn also spoke about the Law for the Encouragement of Capital Investment. "The aim is to encourage investment that produces growth and employment. At present, there is a committee examining whether the law serves these aims. Over fifty years, we have found that the existing law has not succeeded in attracting any global company besides Intel, which came to Israel because of the generous grants track. We can't say how many multi-national companies originating in Israel did not move their activities overseas because of the tax benefits, and we will probably never know.
"Over the years, we have seen growth in the tax benefits and a reduction in the amount of grants provided by the state. Our main aim is to forge a tool that makes it possible to bring new activity that contributes to growth and employment in the country and keeps in Israel the activity of businesses that could move abroad, and to find the exact dosage. At the same time we would like to ensure that there is a link between the amount of tax benefits and the company's contribution to growth, quality employment, and things that serve the Israeli economy. We want to monitor the effectiveness of the benefit over time, with greater transparency for the public."
Published by Globes [online], Israel business news - www.globes-online.com - on June 2, 2014
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