Analysis |

Netanyahu and These Economists Are Only Telling Israelis Half-truths About COVID Aid Plan

Data from National Insurance Institute show that the grant plan forwarded by the prime minister and finance minister offers the lowest contribution to reducing poverty

Meirav Arlosoroff
Meirav Arlosoroff
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Netanyahu and Katz (L) at the unveiling of the payment plan, January 2021.
Netanyahu and Katz (L) at the unveiling of the payment plan, January 2021. Credit: Chaim Tzach / GPO
Meirav Arlosoroff
Meirav Arlosoroff

A half-truth is more dangerous than a lie, the author Maxim Gorky was credited as saying. The economic plan that Prime Minister Benjamin Netanyahu and Finance Minister Yisrael Katz recently released suffers from this ailment precisely. Many statements in it are true, but only half-true – and the distinguished gentlemen, including economics professor Avi Simhon, who presented it are hiding the other half from the public.

The plan, which is basically a presentation of a few slides, opens with a quote from U.S. Treasury Secretary Janet Yellin, who supports increasing public expenditures. Based on her position, U.S. President Joe Biden announced an economic plan equivalent to 8.6% of America’s GDP.

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It’s true, but they forget to note in the slide that Biden declared the new economic plan after the country’s previous incentive plan expired in January, and there was a need to continue supporting the economy. In contrast, there is an economic plan in Israel that is operational until the end of June, and it’s a broad-based plan equivalent to 15% of this country’s GDP. Thus, there is no current need in Israel for another support plan. We definitely need a plan to exit the crisis and to stimulate growth, but Netanyahu, Katz and Simhon opted to barely address this issue.

The presentation ends with a quote from the Central Bureau of Statistics that 22% of business owners in Israel declared that they would not survive more than three months. The quote is unclear. The bureau’s report deals mainly with a range of one month and then six months. In any event, the bureau’s last survey showed that 54% of business owners believe they would survive the next six months, and that’s an enormous improvement over the finding of 32% in October.

(L-R) Yuval Steinitz, Yisrael Katz, Avi Simhon and Benjamin Netanyahu, 2017. Credit: Amit Shabi

For comparison’s sake, the first survey in April showed that only 13% of business owners believed they could survive six months. Their situation has clearly improved dramatically in the interim. The plan mainly deals with metaphorically dropping money from helicopters – another grant to every citizen in the bottom 30%. It’s the third such distribution since the coronavirus crisis erupted.

The prime minister, who positioned himself during the crisis as jolly old Santa Claus who hands out cash to the public to his heart’s content, continues to indiscriminately distribute money – despite fierce opposition from the vast majority of Israeli economists, save for Simhon, of course, and two renowned economics professors from Hebrew University and Cornell University, Uri Hefetz and Naomi Feldman.

The handouts are explained as a need to help the public, which is suffocating from the lockdown, and mainly to stimulate consumption. Simhon explained this week, “There was no point in giving grants when everyone was sitting at home, the restaurants, stores and cafés were closed and it was impossible to buy clothes. Now we want the money to get to the citizens as quickly as possible, because this lockdown will end in another week or two.”

It’s an interesting claim, in light of the fact that the first grant was given on Passover Eve, in the middle of the first lockdown, and the second was given in the summer, shortly before Israel entered another lockdown. Anyway, after two grants, almost every economist, including those at the Bank of Israel and the Finance Ministry, believe they were distributed for political motives only and are considered to be public money tossed into the trash.

There was room to expect the state would check their impact on the economy before deciding on a third grant. Indeed, there was such a review. It was funded by the National Economic Council headed by Simhon and was conducted by Hefetz and Feldman. The review’s results were published last month. “It is our evaluation,” wrote Hefetz and Feldman, “that the government goal of stimulating consumption was achieved at least modestly” (in generous terms). It is a warped statement, reflecting the very mixed results, to say the least, of the research.

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In short, only 20% of respondents said they intended to spend most of their summer grant, and 48% responded that the grant was used for savings or to replay loans. The statistics are dry, indicating a complete failure of the grant to reach the goal of increasing consumption.

Still, Hefetz and Feldman massaged the data, comparing them to research in the United States showing that people spend more than they say they do in surveys. (Similar research was not conducted in Israel.) They concluded that probably 39% to 51% of the grants were used for consumption. Hefetz also admits that one need not accept the presumptions.

In short, any response that 20% to 51% of the grants were used for spending is acceptable, so anyone can decide whichever answer they like. Either way, the success is certainly not glowing.

While the research by Hefetz an Feldman is based on a public poll, the National Insurance Institute published last week relied on real economic data. Its poverty report examined the influence of the government’s various moves of support to reduce poverty rates in 2020.

The data show the poverty rate in 2020 was supposed to be 28.4%, but was 21.6% thanks to the steps taken. Of this amount, the adjustment grants for the elderly and the self-employed reduced poverty by 0.2%, the Passover grant 0.3% and the summer grant, the largest of all, reduced poverty another 0.9%. Thus, the combined grants reduced poverty 1.4% at a cost of over 9 billion shekels ($2.74 billion). In contrast, work furlough policy reduced poverty by 3.2% and extending unemployment benefits until the end of June a further 2.3%, while the nonsensical grants barely scratched the surface for the poor.

Moreover, when we examine which groups benefitted more from the summer grant, we find the Haredim (1.7%), families with five or more children (1.7%) and those who are not working age (2.2%). The summer grant, remember, was given to support consumption, after hundreds of thousands of workers were furloughed. In practice, the ones benefitting most from the grant were not working to start with, and their situation wasn’t adversely affected at all during the crisis.

So yes, it is important to help the poor and to reduce poverty, but that’s always important. The most urgent need in the coronavirus crisis was actually to stabilize the economy, and to help those who were directly hurt by the crisis – the middle-class, and not the lower classes. However, it was urgent for the prime minister to distribute money from helicopters and to brand himself as the “Well-Known Benefactor” (in reference to Baron Rothschild), and the head of the National Economic Council sacrifices every economic principle in supporting him.

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