Bank of Israel sees need for tax hike

Amir Yaron

The Bank of Israel believes that higher taxes may be needs to finance Israel's growing debt.

"Due to the relatively low level of public commercial expenditure and the reduction in tax rates in the years prior to the crisis, and in order to finance the debt, which swelled during the crisis, the need may arise, when the time comes, to raise tax rates," the Bank of Israel wrote in the abstract of its 2020 annual report.

The Bank of Israel, headed by Governor Prof. Amir Yaron, also remarks on the fact that there is still no approved budget and writes, "In order for fiscal policy to again be conducted in an orderly manner and according to long term fiscal rules, it is worthwhile maintaining credibility over time and supporting procedures of setting priorities."

In this context, international ratings agency S&P referred in its report on Israel after the elections published yesterday to a situation in which it will be difficult to agree fiscal priorities because of the political situation, and warned that if the political uncertainty persists then the government debt is likely to swell to up to 80% of GDP.

The Bank of Israel observes that its own monetary policy will need to be adapted to the amount of special instruments that it operated during the crisis, "and to maintain credibility in its ability to achieve its targets."

The Bank of Israel also wrote about the programs introduced during the crisis, like unpaid leave, and said that in exiting from the crisis it will be, "important to stop these programs, to reduce them and adapt their content so that they do not harm the incentive to work and won't perpetuate the existence of inefficient businesses."

On the job market the Bank of Israel wrote, "With the recovery of the economy, the level of unemployment is expected to fall but might remain much higher than the level prevailing in the economy at the start of the crisis."

Published by Globes, Israel business news - en.globes.co.il - on March 31, 2021

© Copyright of Globes Publisher Itonut (1983) Ltd. 2021

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