Netanyahu's solution: Lower taxes and more credit
"We are in a huge economic crisis. The present government can rescue Israel. We have done so in the past and we will succeed again now," Prime Minister Benjamin Netanyahu told a press conference in Jerusalem yesterday to present the Finance Ministry's economic recovery plan.
The plan, said Netanyahu and Finance Minister Yuval Steinitz, is for "braking and stimulating" the economy and is based on five main principles: increasing available credit, preventing unemployment, four large structural reforms, lowering taxes and massive state investments in physical infrastructure.
"The economy is like a plane plummeting, and we need to stop the fall and then give it a push upward," said Netanyahu.
In the first stage of the plan, the government will try to end the negative aspects of the global economic crisis. In the second stage it will seek to move the economy into rapid and sustainable economic growth.
Investors viewed the plan as good news - the Tel Aviv Stock Exchange climbed 2.5% yesterday after the news conference.
The economic recovery plan includes increasing state guarantees for providing credit to NIS 20 billion. Of these guarantees, the banks will get NIS 12 billion next week, allowing them to give more loans to the private sector.
Another move announced at the press conference was the provision of NIS 2 billion in state guarantees for high-tech investments. The state will also provide NIS 6 billion in credit insurance for exporters.
"We have simplified this guarantee and raised the guarantee, so the banks will be able to expand the credit they give to businesses and individuals," Steinitz said. "This step will take effect next week, and I call on the banks to raise capital and expand credit."
Another major plank is reducing taxes gradually in a number of stages from this year through 2016. This year's reduction will be a symbolic 1% cut, but the larger cuts in the following years will especially boost the middle class.
Corporate tax will fall from 26% today to 18% in 2016, and the highest marginal tax rate for individuals will be cut from 46% today to 39% in 2016.
Netanyahu, who also bears the title minister for economic strategy, said the government's tasks is two-fold: "To save the jobs of the citizens of Israel and to launch the economy upwards as it ends the crisis. We want to differentiate ourselves from the [rest of] the world. We want to leave the crisis with a larger share of the world economy."
The prime minister added: "We need growth drivers, and the Israeli economy's main problem is that the economy is blocked and the obstacles to competition need to be removed."
Responses to the plan were not all positive.
"Netanyahu has proved time after time that he is good with empty slogans devoid of content," said Kadima, the main opposition party. "His economic bluff has been revealed and has proved that the government's response to the economic challenges is not serious and is made up of only piles of words and a superficial plan filled with holes that has nothing new and does not provide any answer for the economy's needs."
A Kadima spokesman added that "Netanyahu continues to deceive the public and expects Israelis to forget how he wasted billions on establishing his bloated government, and his preference of buying power with irresponsible sectoral coalition agreements."
Netanyahu and Steinitz did not discuss the budget or spending, saying discussions at the ministry on the 2009 budget were continuing. They promised to hold another news conference on the two-year 2009-2010 budget in a few weeks. Netanyahu said the planned reforms in education and health would not be harmed by the new budget.
The plan also does not contain any intervention in corporate bond markets, and the state does not plan to interfere in transactions between borrowers and lenders. In other words, the treasury will not come to the aid of the tycoons.
The ministry's statement said the plan represented only the main principles, and the cabinet will discuss the plan. There will also be discussions with unions and employers in the coming weeks.
Steinitz met yesterday with the heads of various economic organizations including the president of the Manufacturers Association, Shraga Brosh, the president of the Israel Chambers of Commerce, Uriel Lynn, and the head of the Institute of Certified Public Accountants, Reuven Schiff. Steinitz invited them to express their views on the economic plan, as well as on the 2009-2010 budget.
"As far as I am concerned, the real test of the government will be in the results," said Histadrut labor federation chairman Ofer Eini. "We will conduct intensive talks within the framework of the [economic] roundtable forum to reach an agreed-on economic plan in the next two to three weeks."
Talks between the treasury, Histadrut and employers over the budget continued yesterday, but sources close to the negotiations said very little progress has been made.