Last week, Ram Belinkov, the general director of the Finance Ministry, tried to lower the flames of the worsening spread of COVID-19 in recent weeks.
“There is no discussion of a lockdown. There are no preparations underway at the Finance Ministry because we have not seen any slowing down of the economy, except for some very specific sectors,” Belinkov said, clarifying that there is currently no intention of providing additional support to the economy.
Belinkov is no epidemiologist, and as we’ve recently learned, his boss at the Finance Ministry, Avigdor Lieberman, has been absent from the meetings of the coronavirus cabinet. Contrary to Belinkov’s assessment, it seems that the possibility of a lockdown, or at least the imposition of more significant restrictions, is becoming more and more likely. This week saw the introduction of measures including booster vaccine shots for everyone over the age of 50 and limits on public gatherings, and the return of the Green Pass requirements on most businesses.
In any case, Belinkov seems to have forgotten that the Finance Ministry’s job is to create the necessary economic wiggle room to respond to the pandemic, not to try to predict whether there will be further lockdowns.
But there is no need to jump to nightmare scenarios: the economic effects of the ongoing pandemic are already being felt. The tourism industry is still operating far below its regular level of activity; and parts of the industry that heavily rely on foreign tourism, like tour guides, remain at an almost complete standstill. Despite the quick elimination of benefits for furloughed workers, the unemployment rate has not gone down as of the beginning of July, even though most unemployed people are seeking work.
But despite all of this, government assistance has dissipated almost entirely. Unpaid leave benefits have been cut sharply, grants for the self-employed and for businesses that have been hurt have ended, grants for those returning to work ended at the end of July, and revenue streams in the tourism industry are frozen. The state budget recently approved by the cabinet makes almost no mention of COVID-19. The amount allocated for responding to the pandemic in 2022 stands at less than half of a percent of the GDP (about 5 billion shekels), and there are no proposals for investment to spur economic growth or create jobs.
It seems that Amir Yaron, head of the Bank of Israel, has taken a more progressive stance on this issue than the Finance Minister. Last week, Yaron clarified that an increase in the spread of the virus would demand the reinstatement of aid measures.
Reexamining the policies
The new reality of the pandemic demands new thinking around the economy. The Delta variant will most likely not be the last one, or perhaps even be the most severe, to challenge the Israeli economy. While we hope that the vaccines will be effective in preventing the spread of the newest form of the virus, we must simultaneously prepare for the possibility that they will not. The reality of the past year and a half has already proven that there is a direct link between financial assistance and public adherence to guidelines, and that last-minute decisions reduce the public’s faith in the government’s response.
The renewed economic calculus should take multiple factors into account: the level of restrictions on the economy, from a concentrated severe lockdown to a short period of restrictions; the scale of the damage to various industries (tourism, events, and potentially restaurants and entertainment); and the need to prevent a shock to the job market as it recovers from the pandemic.
The model of a flexible furlough scheme (a model used in Germany), which was shunned during the pandemic despite its proven success in many countries, can solve some of the problems. It would allow employers to continue employing workers in a partial way during periods of increased morbidity without encouraging a return to unpaid leave, which severs the employer-employee relationship.
Directed grants to deal with restrictions can help businesses in affected industries survive the difficult period. For example, closing the airport would necessarily affect anyone who works in the field of foreign tourism or hospitality. There is no need to wait to look at income tax data – the government can simply pair any potential closing of the airport with automatic compensation for affected industries. Adopting these and other tools is an essential step in strengthening our ability to weather the continued spread of COVID-19.
Beyond temporary relief, the new government should rethink its entire approach to the pandemic. Ending unpaid leave benefits and assistance programs is not a solution to the employment crisis. Professional training, investment, and support to develop businesses are needed today more than ever.