The government’s economic aid plan is likely to barely cover the losses that businesses have suffered due to the coronavirus crisis, and it won’t cover future losses as the crisis gives way to recession.
In recent few days, the Finance Ministry has repeated its promises to publish the details of the planned 5 billion shekels ($1.4 billion) in grants to businesses. In the meantime, Israel’s business sector is pushing for more aid.
The government plans to cut checks to businesses with annual revenues of up to 20 million shekels (a, which accounts for some 99% of businesses in Israel, Assaf Wasserzug, the Finance Ministry’s deputy budgets director, told the Knesset Labor, Welfare and Health Committee on Wednesday.
Nonprofit groups may also receive part of that money, he said; this sector has already been promised 200 million shekels in aid.
The grant money is designed to help businesses cover their daily expenses, Wasserzug said.
Still, Israel’s businesses are demanding much more. Many of them have seen their revenues plummet – or disappear – but the proposed government aid is still nowhere near compensating them for the shortfall.
The government has so far been discussing grants as part of the “80- billion-shekel” relief plan announced by Prime Minister Benjamin Netanyahu and Finance Minister Moshe Kahlon on March 30. The details of these grants have yet to be released.
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However, they are likely to be far from full compensation for lost revenue, as industries such as Israel’s fashion chains have demanded.
Last week, the Federation of Israeli Chambers of Commerce estimated that the coronavirus crisis had thus far cost Israel’s businesses around 43 billion shekels (around $12 billion).
This includes lost revenues after discounting saved expenditures such as salaries for employees who were put on unpaid leave. It also does not include any increase in business that could be expected for Passover. The estimate was based on the extent to which each industry was shuttered.
Federation Chairman Uriel Lynn called the damage unprecedented and said the government’s proposed aid, based mainly on loans, was like a Band-Aid for a fatal wound. Lynn said proper compensation to businesses was the only way out of the economic crisis.
Throughout March, the Finance Ministry insisted that there would be no talk of compensation until the crisis ended; there would not yet be a way to gauge the scope of the damage. But it will probably be hard to state the point when the crisis is over. For example, if most employees go back to work but gatherings are capped at 100 people, will the crisis be over?
Business sector sources say the government has a model for providing compensation to cover losses, as it did after several of Israel’s military conflicts such as the 2006 Second Lebanon War.
The grants currently under discussion are slated to be paid out of the Tax Authority’s property tax compensation fund, which currently contains around 15 billion shekels. The funds would thus not have to come out of the state budget.
But depending on the extent of the crisis, it’s not clear that this will be enough; the damage is likely to far exceed what the fund paid out following any of Israel’s recent armed conflicts.
Meanwhile, credit card transactions are down 31% since the government imposed restrictions on movement and the economy in an effort to curb the spread of the coronavirus. The number has fallen to 786 million shekels from 1.1 billion shekels a day, according to data published by the Bank of Israel on Wednesday.
Credit card transactions are one of the indicators that the central bank tracks to gauge the state of the economy. Transactions in most industries have dropped sharply, though grocery store purchases have shot up.
The drop in transactions began moderately and then accelerated starting on March 16, when the country was placed in emergency mode. Purchases have continued to fall in nearly all industries, particularly during the last week of March.
Daily credit card spending on electronics, clothing and furniture tumbled 46% between March 16 and April 19 compared with January 1 through March 15. The number was 55% for fuel and transportation, 68% for tourism and 69% for leisure and education.
Spending at restaurants plummeted 73%. In contrast, daily grocery store spending was up 25%, and pharmacy spending was unchanged.