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Bank of Israel comments on measures announced by the Minister of Finance on April 18, 2017
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The economy and economic activity
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The measures announced by the Minister of Finance are appropriate steps, and most of them integrate well into the government’s strategy to encourage employment, reduce poverty among working people, and assist young working families, and they are in line with the Bank of Israel’s policy recommendations. As they are measures that respond to structural problems, and are not coming to serve a transitory need to stimulate economic activity that is robust in any case, it is important that the measures be permanent and are not terminated after a year and a half.
At this stage, it is difficult to assess the precise cost of the measures announced, as some of them are not completely detailed, and they differ in the dates they go into effect, the period to which they apply, and the process required for their approval. In addition, it should be recalled that a final decision has not yet been reached with regard to the increase in the disability allowance, but it is expected to be significant.
Given these limitations, the cost assessments published by the Ministry of Finance are in line with the assessments of the Bank of Israel. The plan utilizes a significant portion of the reserve for special needs set aside in the 2018 budget within the framework of the two-year budget. Assuming that all the measures are permanent (which is desirable, as noted), additional funding sources for the plan will need to be found, to ensure the ability to meet the fiscal targets for 2019–20.
In addition to the plan presented, it is important that the government continue to take policy steps that will lead to improving the economy’s huma
n and physical capital infrastructures, thus increasing the economy’s long-term growth potential. It is important that the government find budgetary sources for this purpose as well in the coming budgets, while meeting the moderate deficit-reduction framework set in law, so that the debt to GDP ratio will be able to continue declining moderately on a persistent basis, even when the transitory factors currently acting to reduce it dissipate.
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