300 economists: Netanyahu, Smotrich don't see scale of crisis

Top economists Yair Avidan, Eugene Kandell, Roni Hizkiyahu and Yaacov Frenkel credit: Banbk of Israel, Eyal Izhar
Top economists Yair Avidan, Eugene Kandell, Roni Hizkiyahu and Yaacov Frenkel credit: Banbk of Israel, Eyal Izhar

300 top economists have written a public letter calling for the 2024 budget to be changed with a massive diversion of coalition funds to deal with war damage.

A day after the presentation of the Ministry of Finance's renewed compensation plan, senior economists have called on Prime Minister Benjamin Netanyahu and Minister of Finance Bezalel Smotrich to change the 2024 budget. In a public letter, 300 top economists stressed Israel is facing an economic crisis, and called on Netanyahu and Smotrich to act in a different way.

"You do not understand the magnitude of the economic crisis that Israel's economy is facing, you must act in a different way," the letter says.

Among the signatories of the letter are Roni Hezekiah, former supervisor of banks and accountant general; Yair Avidan, former supervisor of banks; Professor Jacob Frenkel, former Bank of Israel Governor; Harvard University's Prof. Elhanan Helfman; Haim Shani, former Ministry of Finance director general; Prof. Josh Angrist, Nobel Prize winner in Economics; Professor Eugene Kendall, former chairman of the National Economic Council; Professor Manuel Trachtenberg, former chairman of the National Economic Council; Prof. Zvi Eckstein, former of the Bank of Israel Deputy Governor; Prof. Eitan Shashinsky from the Hebrew University; and Prof. Leo Leiderman from Tel Aviv University.

First step: stopping the transfer of coalition funds

In the letter, the economists called for an immediate halt to all activities 'that are not essential to the war effort'. The economists stressed that Israel is facing a major challenge: "The severe blow that has befallen the State of Israel requires a fundamental change in the order of national priorities and a massive diversion of budgets in favor of dealing with war damage, aid to victims, and rehabilitation of the economy. In our estimation, expected expenditure following the war will amount to tens of billions shekels."

The economists wrote that first and foremost coalition funds must be stopped, which so far has not been announced by any political entity about stopping them or diverting these funds to a more important activity, such as the reconstruction of the Gaza border region.

Netanyahu recently said that he instructed the Minister of Finance to 'put his hand in his pocket' and said he was in favor of increasing government spending. The letter apparently referred to this by noting that "cosmetic changes within the existing budget do not come close to the scale of the required spending. The government must face the challenges as soon as possible and try to restore the citizens' trust in its ability to do so."

The economists' letter comes after calls by several parties to divert the coalition financial budgets to more urgent purposes in the current emergency. They are headed by the Governor of the Bank of Israel, Prof. Amir Yaron, who stressed in last week's interest rate decision that "budgetary management is important. In the first stage, an effort must be made and the necessary budgetary sources created by changing priorities under the existing budgetary framework. This, including the priorities reflected in the coalition agreement." The Governor repeated throughout the press conference after the interest rate decision that the government must maintain fiscal responsibility and that the "low cost of raising the required funding during this sensitive period" must be maintained.

The compensation plan for the economy, which was presented yesterday by the Ministry of Finance, includes broader compensation for businesses throughout the country and especially for the affected areas in the south. But the current government is not in a hurry to change the budget and divert unnecessary funds in case of need, but rather to increase the deficit, a deficit that according to the most pessimistic scenario in the market may grow to almost 8% next year.

The economists also added that the 2024 budget must be completely changed, and "updated based on an order of priorities that reflects the needs of the entire economy due to the war."

Published by Globes, Israel business news - en.globes.co.il - on October 30, 2023.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2023.

Top economists Yair Avidan, Eugene Kandell, Roni Hizkiyahu and Yaacov Frenkel credit: Banbk of Israel, Eyal Izhar
Top economists Yair Avidan, Eugene Kandell, Roni Hizkiyahu and Yaacov Frenkel credit: Banbk of Israel, Eyal Izhar
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