Treasury Economic Stimulus Plan Ready

The treasury will present its economic stimulus package to head off effects of the world economic crisis in Israel.

The treasury will present its economic stimulus package tomorrow to head off the effects of the world economic crisis in Israel. Finance Minister Roni Bar-On and his director general, Yarom Ariav, will hold a press conference in Jerusalem tomorrow to announce their proposals.

The center of the program is NIS 10 billion for infrastructure projects in areas such as roads, railways, water and sewage. The extra infrastructure spending will increase economic activity and employment, partly offsetting the slowdown. Thousands of jobs will be created, many in the periphery of the country.

The rescue plan also includes doubling the budget of the Chief Scientist's Office from NIS 1.3 billion in 2009 to about NIS 3 billion; extending large amounts of credit at good terms to mid-sized and small businesses by providing state backing for part of the funds; and transferring large budgets to the north and the Negev, particularly in infrastructure and education.

At the same time, the Bank of Israel will continue its expansionary monetary policy by lowering interest rates even further to encourage exports. The central bank will also continue, at least through December, its plan for increasing foreign currency reserves.

The treasury will also lead attempts to speed up various regulatory changes, including those by the Israel Securities Authority and Bank of Israel. The intention is to improve supervision of the financial sector and correct distortions revealed in the past few months. Capital markets would also be strengthened and consumers better protected.

Another proposed change is delaying payment of VAT by small businesses and individuals to 60 days, along with expanding and improving programs for professional retraining and placement for the unemployed.

The problem: No 2009 budget until spring

Bar-On and his senior deputies held a long meeting Friday to debate the plan. The plan's total cost will be based on the budgets for 2009 and following years, but the problem is 2009. Because of Prime Minister Ehud Olmert's resignation and the early elections scheduled for February, the 2009 budget will not be approved until well after the elections, at least not until April or May.

Therefore, for the first half of next year the state will continue to operate according to this year's budget, which the treasury considers inappropriate for solving the economic problems. That is why Bar-On wants to announce the plan immediately and start implementation now, which will provide encouragement and support for the economy, both for the business and consumer sectors.

The treasury decided Friday to reverse its previous positions of recent years, said participants at the meeting. One major change was the decision to increase the 2009 budget deficit beyond what the cabinet approved in August. However, the treasury decided not to increase general spending, but to increase the deficit to cover the program - despite demands by various parties such as Labor, Shas and the Pensioners for increasing the 2009 budget.

The additional spending will be funded by special appropriations beyond the regular budget, and not included in the base budget for future years. This, for example, is how the treasury financed the additional spending for the Second Lebanon War.

The original deficit planned for 2009 was 1% of GDP, about NIS 7 billion. Now the deficit will rise to between 3% and 4% of GDP, NIS 21 billion to NIS 28 billion, and possibly more.

However, the treasury views this additional amount as a one-time affair due to the economic crisis, and future budgets will not be raised to include these sums in the future. The new program does not include possible state bailouts for corporate bonds and pension savings. Last Thursday, Fischer said such intervention in the capital markets was undesirable.