The Ministry of Finance's current forecast for 2021 contains some optimistic projections, such as a fall in unemployment and a fiscal deficit amounting to 8.8% of GDP, lower than the double-digit forecasts given just a few months ago. The ministry forecasts a fiscal deficit exceeding by NIS 39.5 billion the legal limit that was in place before the coronavirus pandemic hit. Financing this deficit will be the task of Israel's next government, and so we asked the parties running for the Knesset how they intend to reach the pre-coronavirus deficit target. Yisrael Beitenu, United Torah Judaism and Shas did not respond to our queries.
Likud: Waiting for the Economic Arrangements Law and looking to the Abraham Accords
While the Likud party refused to present an orderly plan at "Globes'" request, Minister of Finance Israel Katz (Likud) has already announced that he does not intend to raise taxes, but he has not stated how he intends to narrow the deficit.
Likud claims that the Economic Arrangements Law that has not made progress because of the lack of a budget contains provisions that will lead to greater efficiency and investment in the country, a lower cost of living, and job creation, as well as dealing with the housing problem. Likud also mentions the Abraham Accords with the UAE and Bahrain as generators of new revenue and investment for Israel.
Yesh Atid: Widen the debt:GDP ratio; an economic package deal
Yesh Atid seeks to deal with the problem by widening the government debt:GDP ratio to 82-85% (which is lower than the European average) and "to invest much more in the health system, education, higher education, work training for haredim and Arabs, and in young people who want to set up business ventures." Yesh Atid also proposes to cut the number of government ministries to eighteen, and to put together a package deal for the economy in conjunction with employers' organizations and the trade unions in which pay will be frozen and more flexible employment laws will be introduced.
"Instead of raising taxes, we will deal with the deficit by accelerating growth engines, from massive promotion of professional training focused on groups that do not work, to switching employment to technology industries. We will raise the number of people employed in innovation, which accounts for 9% of the workforce today, to 15% within three years, and to 20% within five years," the party says. Its platform also states that it will invest massively in infrastructure, principally digital and scientific infrastructure, that will help in making the economy grow. "We shall engage with the hedge fund industry, a market that Israel is not part of. We shall adapt the taxation laws to the hedge funds, which will attract capital and employers."
Yamina: Cut the fat from the public sector and lower taxes
Yamina is sticking with the plan that it presented a while ago, the Singapore plan. The plan proposes a dramatic tax cut for working families and business owners, cutting back regulation, which according to the party is stifling the private sector, and streamlining of the public sector.
The sources for implementing the plan are meant to come from huge growth in the economy, "as has happened in other countries that took this bold path, and from freezing state budgets for five years, which will compel government to become more efficient and unnecessary ministries and agencies such as the Ministry of Water and the Ministry of Community Development to be shut down."
New Hope: Structural reforms, distribution of undistributed earnings
New Hope proposes working on the revenue side and expanding the budgetary cake, through "raising productivity and restoring the economy to a rapid growth track; we will pass the budget and the Economic Arrangements Law with very significant structural reforms."
The reforms that the New Hope party seeks to introduce include substantial improvement in the competitiveness of sectors such as banking, insurance, imports, planning and construction, and also a pruned bureaucracy.
"In addition, we shall encourage and support professional training and re-training for sectors with higher productivity. Another significant move will be full digitization of all public services, with the aim of turning Israel into a paperless and queue-less country"
New Hope also plans to raise state revenues by providing incentives for the distribution of NIS 100 billion in undistributed earnings, and taxation of personal service companies, in measures similar to those imposed in previous economic crises.
Labor: Halt investment in Judea and Samaria, raise fiscal deficit target
The Labor Party wants to halt investment in Judea and Samaria, and to abolish unnecessary ministries. "First of all, a new state budget must be passed, after three years in which there has been no proper budget debate. In the new budget, unnecessary spending brought about by political pressure should be cut, and unnecessary government ministries should be abolished. Investment in infrastructure is areas of Judea and Samaria that will not remain under Israeli sovereignty in any future settlement should be stopped." After that, the Labor Party says, "we will demand greater efforts to combat the black economy and tax planning, and to encourage the release of undistributed earnings in commercial companies and personal service companies."
The Labor Party also talks about the need to raise the fiscal deficit in the next few years "out of the realization that such investment now, at a time of crisis, will generate a return to the state in the coming years, and this while we are in a period in which the social services that the state can provide to its citizens are more necessary than ever."
Blue & White: Encourage a return to work and invest in infrastructure
The Blue & White party claims that the economic problems stem from Prime Minister Benjamin Netanyahu's decision not to pass a state budget for two years. "The entire Israeli economy will need an injection of encouragement, and time to recover from the damage inflicted on it. We are already acting to prevent spending anarchy that will deepen the fiscal hole, to encourage a return to work and routine, and to create growth engines that will get the economy going through investment in infrastructure and innovation. The deficit will therefore not be the most urgent matter, and in Blue & White we will do everything to encourage people to return to work and to encourage investment."
Meretz: An inheritance tax, higher government spending
Meretz supports higher taxation on the wealthy: the creation of a new "billionaires tax" meant to make the top 0.1% that holds vast capital to contribute its share in the national effort to deal with the severe crisis, and also the introduction of a progressive inheritance tax, at rates of 10-20%, on inheritances of over NIS 5 million, not including homes.
"In an interest rate environment close to zero, the cost of raising the fiscal deficit for the purposes of providing public services is very low. Meretz supports setting a target for the debt:GDP ratio of 80%, alongside a gradual increase in the ratio of government spending to GDP to the average for the developed countries. This means a rise of 6.5% of GDP over the next decade."
Joint Arab List: Cut defense budget, higher taxes on the wealthy
Like the Labor Party, the Joint Arab List speaks of a need to expand the fiscal deficit first, and like Meretz it wants to see taxation of the wealthy. "The fiscal deficit is not the real problem. The problem is the social distress and the lack of investment by the state in its citizens. Spending cuts are not the solution - certainly not at a time of unprecedented crisis. The government should increase public spending even at the cost of a higher deficit, with a focus on support for citizens and boosting the economy and employment. At the same time, a democratic and egalitarian approach should prioritize state spending differently - more to the citizens and social services, and a cut to the swollen defense and settlements budget. A first, important step in changing priorities is higher taxation of capital gains and the wealthy."
Religious Zionist party: A coronavirus tax on the public sector, abolition of tax benefits
The Religious Zionist party seeks to introduce structural changes in order to deal with the deficit that has arisen. Among other things, the party proposes a law mandating arbitration in vital services to protect the public from strikes, and a temporary coronavirus tax on high-earning public sector employees, similar to the growth encouragement levy imposed on the public sector in the economic crisis of 2003.
This tax will be in force for two years, and will be progressive, with senior employees on high salaries paying higher rates than those on low salaries. In the medium and long terms, the party proposes that a streamlining program in the public sector and the abolition of unnecessary jobs could restore to the state purse the resources that are lacking.
The Religious Zionist party also proposes the abolition of various tax benefits, and instead the introduction of an across-the-board tax cut that will produce an easier environment for business. Finally, the party proposes cutting back unfunded pensions.
Published by Globes, Israel business news - en.globes.co.il - on March 11, 2021
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