The stimulus plan presented last night by Minster of Finance Moshe Kahlon was in important step in the right direction, but is still far from enough to help weather the storm of COVID-19. True, with unemployment rates surging to over 22%, any plan is preferable to the government's callous inaction over the past three weeks. But the 46.8 billion shekel stimulus, which amount to only about 3.2% GDP, will certainly not suffice to guide us safely through the current crisis. Its a matter of too little too late.
A crucial addition to the emergency economic plan announced two weeks ago is the financial aid for the self-employed, who will be entitled to some compensation for lost income due to the coronavirus outbreak. Another important aspect of the plan is the direct support for businesses in the form of tax breaks and compensation payments.
Another important factor to take into account is that this plan finally places Israel on par with other countries in terms of government action to mitigate the economic disaster brought on by the virus. In other words, Israel is no longer lagging behind the rest of the world. Having said that, it's worth noting that time plays a key role here: the Israeli government took about three weeks to present a stimulus plan worthy of its name, while other governments have done so within days of implementing social restrictions. Israel may find itself pushed back to the bottom of the list again, when other countries introduce further economic measures in the near future.
Can the self-employed breathe a sigh of relief?
Up until now there has been no government support for the self-employed who've suffered losses due to the outbreak. Under the plan announced yesterday, the self-employed will receive up to 6,000 shekels in direct payments from the government in March, and up to 8,000 shekels in April.
And yet, the plan falls short of offering the self-employed a reliable safety net such as unemployment benefits. Several self-employed groups have called for the government to extend unemployment benefits to them, and to include a tax break and 25% compensation on losses incurred due to the virus.
The government has also offered a 2.7 billion shekel municipal tax break for businesses, but the plan does not specify how this tax break will be funded. The government has not included a commitment to reimburse councils for the loss of income, which might lead to a de facto cut in council funding in the near future.
Intentional crisis brewing in Social Security?
The plan includes no mention of funding sources, which might be an opening for future budget cuts. The Ministry of Finance has already hinted at its intention to offset spending with budget cuts, including public sector pay cuts. It has become increasingly clear that, unlike all other countries, the Israeli MoF intends to minimize budget increases.
The most worrying aspect of this is the future of Israel's Social Security (Bituach Leumi). The plan has allocated 20 billion shekels to pay for extended unemployment benefits via the Bituach Leumi. And yet there is no mention of the government compensating for these huge expenses. It is also important to note that the crisis is far from over, and can be expected to continue for months to come. The expenses incurred by Bituach Leumi will likely be much higher than those mentioned in the plan.
While Meir Shpigler, head of Bituach Leumi, has demanded the government compensate for the extra cost of unemployment benefits, the MoF has up until now refused to make such a commitment.
This may lead to a major blow to Bituach Leumi, which might find itself strapped for cash due to the extra payments. A liquidity crisis in Bituach Leumi would allow the government to demand cuts to benefits, under the pretext of the crisis – a step that the Ministry of Finance would be only too happy to support. The meaning of such cuts would be that in essence, the Israeli public would have payed for the government's stimulus plan out of their own insurance rights.
So, a step in the right direction, but too little and too late. Definitely not the New Deal Israeli citizens desperately need.