Budget impasse stalling vital economic reforms

Yisrael Katz Photo; ASAP Creative Shutterstock

Failure to pass the Economic Arrangements Bill is putting Israel's economic future at risk, argues Barak Herscowitz.

In interviews with the press, Minister of Finance Israel Katz has talked about the important Economic Arrangements Bill he has drafted to be passed in conjunction with the state budget. But one casual throwaway line, said almost in passing during his interview on the Kalman Liberman program on the Kan Bet radio network, caught my attention: "We prepared part of the Economic Arrangements Bill, but I can’t now append the provisions to the 2020 budget, maybe only a few, because I want to pass the budget quickly and get us up to date." This statement did not receive much attention, but it is, essentially, a giant iceberg floating in the sea, that could portend a devastating accident to Israel’s economic ship.

The Arrangements Bill has, in the past, been the target of public and legal criticism for aggressively forcing the Knesset to vote on a large pool of issues without allowing for an in-depth public debate on each and every item. Despite the criticism, the Arrangements Bill does have its benefits: every year or two, it enables comprehensive reforms to be introduced that fail to pass at other junctures in the ongoing Israeli political chaos.

The Minister of Finance is correct in saying that the Arrangements Bill Law that was presented to the public in draft form last summer is important for the economy. It contains critical reforms that will allow the economy to return to growth as the Covid-19 crisis subsides.

Among those reforms (a portion of which I have been privileged to be involved in promoting): a reform that will facilitate imports and cut Standards Institution red tape; initial reforms that will allow, for the first time, greater flexibility in the education system; reforms to accelerate business licensing - a move that will reduce unnecessary costs for many businesses and lower the cost of living; a transition to direct support for farmers and opening markets to lower the cost of living; improved firefighting regulations, and many other important reforms.

It’s clear to everyone that the day will come when the state will be forced to stop taking unimaginably huge loans simply to artificially resuscitate businesses and keep a million unemployed people at home.

When deliveries of "budgetary gift boxes" end, we’ll find ourselves at a crossroads, that - with no exaggeration - may determine the future of the State of Israel, its security and prosperity. If we are left with an ossified, faltering public sector and an absurd bureaucracy that suffocates free enterprise and small businesses, we may find ourselves sliding into a prolonged recession that will be difficult to recover from, and will have a critical impact on the quality and standard of living.

On the other hand, if we allow the economy to grow rapidly, businesses will be able to expand, rehire the many unemployed, contribute taxes from their growth that will cover the huge deficit, and produce new growth engines to drive the economy forward.

The problem is that if what Minister Katz stated is true, and the Arrangements Bill is not voted on this year, it could very well not be voted on at all in the near future.

A delayed national budget is significant, and a delayed Economic Arrangements Bill even more so. Right now, the Israeli economy is a heavy ship sailing in stormy waters in the dark of night. Certainty is almost non-existent and visibility is very limited. In this situation, a delay, however short, could result in our colliding with a long hard recession iceberg, lurking in wait for us.

The Israeli government has to change course urgently. The Arrangements Bill presented by Katz and the Ministry of Finance to the public is valuable reform-driven fuel for the engines of economic growth. If it does not pass immediately, it may be too late.

The author is an expert in economic regulation, co-founder and CEO of consulting company Griever-Herscowitz, and a leader of the Minesweeper (Sholeh HaMokshim) project to reduce bureaucracy in the business sector.

Published by Globes, Israel business news - en.globes.co.il - on November 11, 2020

© Copyright of Globes Publisher Itonut (1983) Ltd. 2020

Yisrael Katz Photo; ASAP Creative Shutterstock
Yisrael Katz Photo; ASAP Creative Shutterstock
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