The Bank of Israel has spent NIS 2 million to date on preparations for establishing the Israeli Citizens' Fund (sovereign wealth fund), even though not a single person has been hired yet to work at the fund. In a discussion today at the Knesset Finance Committee, MK Orit Farkash-Hacohen (Blue and White) asked Governor of the Bank of Israel Prof. Amir Yaron what the money had been spent on, but Knesset Finance Committee chairman MK Moshe Gafni (United Torah Judaism) did not allow the Bank of Israel's representatives to respond.
Later, however, Bank of Israel planning and economics unit head Yael Vaknin said that the money had been spent by the Bank of Israel on payment to consultants, technological systems, and accounting consultation.
The dispute in the debate arose after Francoise Ben Zur, director of market operations for the Bank of Israel financial division, said that progress could not be made in establishing the fund because no one had been hired yet for its institutions. The hiring committee, headed by Judge (ret.) Moshe Gal, which was supposed to have been working for the past two years, had not managed to convene, and had dispersed without making a single appointment.
Gafni cut Farkash-Hacohen off and did not allow her to ask the Bank of Israel's representative more questions. He said, "We failed in everything about this fund. It is irresponsibility of the highest order that taints all of the parties involved in it." Yaron merely said, "Everything that the Bank of Israel could have done - we did."
The original date for beginning the fund's operations was 2018, but has been postponed until late 2021, following a delay in transferring the proceeds. The written response to Farkash-Hacohen by Yaron before the discussion indicates that a legal dispute between the Israel Tax Authority and the Ministry of Finance Accountant General Department is likely to further delay the fund's operation.
By law, the sovereign wealth fund is to begin operating when NIS 1 billion is accumulated in its bank account. The Accountant General believes that tax revenue should be recognized as soon as it enters the fund's account. The Tax Authority, on the other hand, argues that revenue should not be recognized until the end of the allotted time for appealing tax assessments. For this reason, it can be assumed that the date for operating the fund is likely to be delayed again, this time until 2022, if the Tax Authority's view is accepted, because the Bank of Israel estimates that the current date for operating the fund is by the end of 2021.
Despite the delays in establishing the fund and the fact that appointments to senior positions in the fund have not yet to be made, the Bank of Israel has spent millions of shekels in the past two years on preparations for establishing the fund. Among these actions are negotiations for agreements with international financial concerns to serve as trustees and investment managers for the fund. The Bank of Israel, however, has not managed to sign any agreement with financial institutions, because it has not obtained the necessary power of attorney for this purpose from the Ministry of Finance.
Yaron also said that the Bank of Israel's management department had carried out "actions to install the accounting system for managing the fund's book." A draft agreement was also prepared for managing the fund's account at the Bank of Israel, but no special department has been set up at the Bank of Israel to manage the fund's assets.
The budget deficit will fall to 3.3% in 2020 if the state is managed according to the temporary budget for all of 2020 (one twelfth of the 2019 budget each month), Yaron predicted today at the Finance Committee meeting. He added that if the state budget is approved, the structure deficit would jump to 4.2%, which would require the government to make cuts and obtain additional revenue amounting to NIS 30 billion in order to prevent a worsening in the debt to GDP ratio.
Farkash-Hacohen asked Yaron what he meant by a worsening of the debt to GDP ratio, and whether the deficit target could be raised above 3%. Yaron answered that a 2.5% deficit target would support the current 60% debt ratio.
Yaron also presented the Bank of Israel's NIS 1 billion budget for 2020.
Published by Globes, Israel business news - en.globes.co.il - on January 20, 2020
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