After other governments announced economic programs of unprecedented cost to cope with the fallout of the coronavirus pandemic, Israeli Prime Minister Benjamin Netanyahu was determined to present one of his own that was no less dramatic.
The plan he unveiled in a broadcast Monday night calls for no less than 80 billion shekels ($22.3 billion) in spending, an amount equal to an eye-popping 5.7% of gross domestic product as of 2019. In fact, 2020’s GDP may well be lower and the spending figure therefore relatively higher.
Whether this is the amount the government really plans to spend remains an open question. But it is worthwhile remembering four points when analyzing the headline figure.
The first is that the 80 billion includes the 10 billion shekels that Netanyahu and Finance Minister Moshe Kahlon announced March 11. The second is that a lot of the spending items have been formulated in general terms; how the money will actually be spent is still unclear.
Thirdly, implementation of such a big spending increase requires several precursors, including finding money in the budget and amending the Basic Law on the State Economy. Right now, the government by law is confined to spending along the parameters of the 2019 budget on a month-to-month basis. Increasing the level of government loan guarantees requires approval of the Knesset Finance Committee and other measures require emergency orders be put into place or for the Knesset to pass legislation.
Finally, the actual cost of the plan is not final. In some cases, the actual spending will only become clear after the fact. For instance, the amount the government ends up spending on unemployment benefits hinges on how many Israelis are laid off or put on unpaid leave.
No matter, for the time being there’s no choice but to rely on the treasury’s estimates and they include the following items.
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For the healthcare system, the program allocates an additional 11 billion shekels and has nothing directly to do with mitigating the coronavirus’ economic impact. Of that, 10 billion will go to the healthcare system – buying medical equipment, hiring more doctors and nurses and housing virus carriers in hotels. The other 1 billion will be to help at-risk populations, for instance providing for deliveries to the elderly.
Another 19.5 billion shekels will be directed toward loans for the business sector, most of them with government backing. The credit will be provided by the commercial banks with the understanding that the state will ensure at least most of the repayments if the borrower cannot repay. The program aims to inject money into the economy at relatively little direct cost to the state budget.
Small and medium-sized businesses will be entitled to up to an aggregate 8 billion shekels and big businesses (defined as firms with turnover of 400 million to 1.2 billion shekels) will be able to borrow in aggregate up to 7 billion. Loans of up to 4 million shekels each will go to nonprofits in the fields of health, education and welfare.
The treasury is also promising that it will set up investment funds “that help Israeli companies to fund their operations.” These funds, amounting to 4.5 billion shekels, will be run jointly by the government and financial institutions and are modeled after ones set up by governments in the wake of the 2008 financial crisis to enable otherwise strong borrowers to obtain credit. How effective they were has been subject to debate.
The third component of the plan calls for 12 billion shekels in liquidity assistance by enabling businesses to delay payments due the government or get payments from it earlier. These include an estimated 9 billion in payments due for taxes or National Insurance (social security) and bills to state-owned water and power companies.
It also includes refunding companies for tax prepayments made in February and March that ended up being in excess of the actual amount due. Usually, companies wouldn’t see their refunds till the following year; now they’ll see them soon.
For wage-earners, 17 billion is being allocated for a social safety net to be operated by the National Insurance Institute. For now, the NII will cover the cost from its own budget, with some help from the treasury.
The NII had expected to run a surplus this year, but that will disappear with the new spending, so the treasury will have to provide additional funds.
Approximately 14 billion of the budgeted amount will be directed to jobless benefits to people who have been put on unpaid leave. The treasury says the amount should cover benefits for the next three months. The amount is bigger than treasury planners had assumed just two weeks ago and reflects a concern that employers are taking advantage of the state’s easier conditions for benefits to transferring their labor costs to the state.
The other 3 billion will be used to pay benefits to workers over the minimum retirement age of 67 who don’t qualify for ordinary unemployment aid.
Another approximately 7.7 billion will go to projects the treasury wanted to undertake with or without the epidemic. Unlike the others, which aim to help the economy weather the crisis, this money is targetted at speeding a post-virus recovery. They include infrastructure projects, mainly in transportation, worth 1.1 billion shekels, for instance, taking advantage of empty highways to undertake repair and maintenance work. Another 1.5 billion will go to high-tech companies.
A final 12.6 billion shekels will be allocated for direct budgetary aid to businesses. About half will be structured so as to encourage companies that keep workers on their payrolls, although how that will be done has yet to be determined.
Another 3 billion will go towards a controversial plan to give grants of up to 8,000 shekels a month to the self-employed. Other money reflects the cost of giving businesses a temporary exemption from arnona (municipal tax), an expense the central government plans to share with local authorities.