Eight days after the outbreak of war, Minister of Finance Bezalel Smotrich and senior Ministry of Finance officials have presented the government’s plan for dealing with the war’s economic consequences. Among the measures proposed are a grant of up to NIS 1,000 per person for those evacuated from communities in the Gaza Strip border area, exemption from local taxes (arnona) for residents of the war zone, compensation for businesses that are harmed, relaxations for self-employed people, and an allocation of hundreds of millions for the health and internal security systems.
Speaking to "Globes", Prof. Manuel Trajtenberg, an economist who is executive director of Tel Aviv University's Institute for National Security Studies, said of the plan that the measures would not be enough to provide a significant response to the needs of the economy, and sharply criticized the government. He says that the state budget for 2024 should be cancelled and reformulated, and that the fiscal deficit must not be allowed to get out of hand.
"’Economic plan’ is too grand a phrase to describe what has been proposed," says Trajtenberg, who twelve years ago headed the public committee on socio-economic change, following a wave of social protests in Israel. "The Ministry of Finance has presented a few tiny measures, no more than that. It’s true that we’re only in the tenth day of the war and the initial shock hit all of us. But the Ministry of Finance and other ministries still haven’t pulled themselves together. Either they don’t understand the magnitude of the event, or their leadership and professional capabilities are inadequate. We have been warning for months that the government has hollowed out the professional ranks in the public service and emptied them of quality people. Now we are paying the price."
"There are 70,000 refugees in Israel, and no response"
So what should be done now? Trajtenberg divides the required action into two parts: immediate help for evacuees from the north and the south, and a long-term response for the economy.
"There are 70,000 refugees in Israel today. These are numbers we have never seen before, and they are growing daily," he says. "At present, there is no systematic care for these people, who amount to a whole town, not something you can put up in a hotel in Eilat. Some of them might not have anywhere to return to, and the uncertainty will continue for weeks.
"A comprehensive, detailed plan should be prepared for housing these people, and giving them financial and psychological aid, and education for their children. Something huge is happening here under the nose of the state, and there is no genuine treatment of the problem."
As far as aid for the economy as a whole is concerned, Trajtenberg explains that the main difficulty at the moment is among small and mid-size businesses. "These are businesses that have no breathing room. If the business owner has been drafted into the reserves, or there are two employees and one has been drafted, then the business now doesn’t exist. The employment problem must be solved. There are severe problems at vital factories as well, because many employees have been drafted, and also because the education system isn’t working and parents have to stay at home with their children"
"Delete the 2024 budget
To gear up to face the new situation in which Israel finds itself, Trajtenberg believes that the government needs to reopen the state budget. "This is not a matter that can be resolved by transferring a few hundred million," he explains. "The 2024 budget is no longer relevant and should be deleted. There needs to be serious staff work, and for that to happen there has to be an instruction from above. Opening up the budget needs to be accompanied by a drastic change of priorities. Of course, the terrible mistakes made in this year’s budget have to be corrected, such as the use of the money allocated to coalition parties."
Even before the war broke out, it was already clear that the fiscal deficit target on the basis of which the 2024 budget was constructed was far from realistic. The Ministry of Finance began to prepare for a deficit of 3% of GDP, but it is now clear that the numbers will be much higher. "For as long as the fighting continues, you don’t calculate how much the deficit will cost," Trajtenberg says, "but because the 2024 budget needs to be redone, a new deficit target has to be set. The instinct is to open the tap, and I say ‘No!’ We do now need more tolerance over expanding the deficit , but things must not get out of hand."
Earlier this week, senior business people told "Globes" that that at this time there was no objection to raising the deficit even to 10% if necessary. Trajtenberg disagrees. He prefers not to specify a number, but says that the deficit has to be much lower. "It’s true that we have a low debt to GDP ratio, which allows the country to have a deeper deficit, but that does not mean that we should run away from making the difficult decisions that should have been made even beforehand on the order of priorities."
The economic cabinet: "Black humor, or mocking the afflicted"
The decision that most disturbs Trajtenberg, however, is the expansion of the social-economic cabinet and the appointment of Prime Minister’s Office director general Yossi Shelley to coordinate its work. "I don’t know whether this is black humor. Even when this cabinet was originally formed to deal with the cost of living, I said that is was mockery of the afflicted. When you set up a cabinet of about twenty ministers and members of Knesset, it can’t function in the first place, and then you add more ministers?
"And whom do you put as the professional in charge of this thing? Yossi Shelley, who since he took up his post has proved beyond doubt hat he has no professional ability whatsoever to run the Prime Minister’s Office in peacetime, let alone in wartime. This is a wretched decision, to say the least," Trajtenberg says acerbically.
He says that the government would be doing the right thing if it acted as it did during the Covid pandemic. "Then they set up a professional body that was called "Shield of Israel", which managed the event and functioned well. A similar body needs to be formed now to deal with the social-economic aspect, and it should be given broad powers. Instead of a bloated cabinet, there could be a small group of three to four ministers to which the professional body reports. Exactly as they did with the downsized security cabinet, a civilian emergency cabinet could be formed. Instead of that, they did the complete opposite."
Yesterday, the government announced that Minister of Finance Bezalel Smotrich would take over the authority to run the economic cabinet from Prime Minister Benjamin Netanyahu. "There’s a problem when the minister of finance, who is meant to be the leading figure in the cabinet, cannot to this day manage to conduct himself other than as a promoter of sectoral interests," says Trajtneberg, who in the past served as a Labor Party member of Knesset. "I’m therefore very anxious, because some of the people in the cabinet are apparently incapable of becoming actors in the broad national interest even in the State of Israel’s most difficult moment."
Published by Globes, Israel business news - en.globes.co.il - on October 17, 2023.
© Copyright of Globes Publisher Itonut (1983) Ltd., 2023.