Fischer: Let Imports Spur Competition

Fischer warns that if the military budget expands as a result of regional developments, the government will not be able to continue with its tax-cutting policy.

Imports are one of the tools that should be employed to increase economic competition, Bank of Israel Governor Stanley Fischer urged yesterday in his address to the 19th Caesarea Economic Policy Planning Forum.

"It's natural that Israel has few banks, relative to the United States, but this is an obstacle to competition," Fischer told the conference, held at the College of Management-Academic Studies in Rishon Letzion.

fischer - Yossi Fisher - June 21 2011
Yossi Fisher

"We have to acknowledge this and try to bring about greater competition. Despite the shouting over cottage cheese, in most countries an important part of competition is from imports, and if we close off the economy you limit the possibility for competition," the governor said.

He also showed understanding: "It's only natural for everyone to want to restrict their competitors," Fischer said. "I remember the teacher of my first college economics course saying that the monopolist isn't a bad person - it's what everyone wants to do. But we have to prevent it."

Fischer warned the cabinet against breaking the state budget over the next few years, and said that if the military budget expands as a result of regional developments, the government will not be able to continue with its tax-cutting policy.

More security spending

"We are speaking about possibly having to spend more on security due to geopolitical changes. We can't keep doing that while continuing to cut tax rates," Fischer said. The central bank head even hinted that for the tax cuts and knuckling under to the financial demands of the coalition partners, annual growth would have to be at least 4.5% in the next few years.

"With annual growth of 2.5%, the debt-to-GDP ratio will begin to rise. With 3.2% growth there will be a small rise in debt-GDP. If growth hits 4.5%, which far exceeds the historical average, we could continue to enjoy continued decline in the debt-GDP ratio," Fischer said. "We could continue to cut tax rates and to increase spending while keeping the deficit smaller than the budget."

With regard to the housing sector, Fischer said he has greater faith in the figures of the Central Bureau of Statistics than in the Finance Ministry's numbers. "The bureau says prices continue to climb, while the treasury says they're starting to drop. I lean more toward believing the bureau's data," Fischer said. He added that cooling the fervid market should be done not only on the demand side of the equation - by making mortgages harder to obtain - but also on the supply side, by freeing up more land for building and slicing through planning bureaucracy.

"The cabinet is trying to deal with the issue, but the Bank of Israel and the Finance Ministry are still concerned by the housing price index. Something that rises at an annual rate of 16% doubles itself in less than five years. That cannot go on forever, and it will end. The question is whether we can stop it in a manner that won't damage the economy," Fischer said.