Bank of Israel Governor Prof.
Amir Yaron participated in the cabinet meeting today. The following are his remarks as part of two
of the discussions that took place:
The Governor’s discussion of
the grant to all Israeli citizens:
The revision made to the grant to
every citizen is in the correct direction from an economic standpoint in terms
of encouraging demand, in contrast with the original program to which I
responded in the previous discussion.
This is because, to a certain extent, it allocates the sources to the
group with a higher marginal tendency to consume. However, the revision to the program increased
the resulting expenditure even more.
The economic safety net announced
by the government on July 9 is an important element in reducing economic
uncertainty and stabilizing demand in the economy, and it supports salaried
employees, the self-employed, and businesses that have been negatively impacted
by the crisis. At the same time, we must
continue working to create as much health certainty as possible, so that the
various economic measures will be more effective, since these are complementary
tools.
In parallel, it is also important
to advance an orderly and inclusive program that will focus on lowering the
costs of employment for firms and provide incentives for investment. These will increase businesses’ demand for
workers. The increase in employment that
will result will increase the security of households regarding their permanent
income, and will thereby support an increase in consumption in the present, and
will create a feedback of increased demand and employment in the longer term
and in a prolonged manner.
Israel’s fiscal expansion is not
exceptional by international comparison with other advanced economies. Around the world, countries are being forced
to increase their deficits and to take on debt in order to prevent greater
damage to the economy. However, it is
important to remember that the risk attributed to Israel is grater than that
attributed to stable countries in Europe with a similar debt to GDP ratio. Therefore, it is important to avoid a sense
that there is no limit to the ability to increase public debt. We must make informed use of the amounts
being spent so that they contribute to the ability of the economy and of
households to rapidly get out of the crisis once the health restrictions are
removed. At this stage, there is no
concern over the ability to finance the economy over time, but the longer the
crisis persists, and the greater its negative impact is, the more important it
is to use budgetary sources efficiently.
Therefore, the economic sphere currently requires risk management with the
intelligent use of the freedom that remains for budgetary policy to react later
on.
The Governor’s discussion of
the program to accelerate digital services to the public and promote digital
learning:
The program to accelerate digital
services that was presented here is welcome.
This is a program that provides a response to a need that exists in any
case, and leverages the opportunity that has been presented due to the crisis
in order to respond to the need more forcefully. The government, with all of its extensions
and services to the citizen, can, and even must, be a significant catalyst for
leveraging the digital world. This is a
process where the proper and successful implementation will support the
propulsion of the economy and will itself be an investment with a very high
yield for the Israeli economy over time.
Fortunately, elements of this
program correspond with the Bank of Israel’s recommendations in the
Comprehensive Report on Productivity that we published almost a year ago. This
is true during “normal” times, and is even more true at this time. Steps such as reducing regulation, leniencies
for businesses, making training and digital learning more accessible, adapting
financial services and making them more accessible, and advancing to uniform
and inclusive digital identification for the citizen, will all help promote an
environment that encourages innovation and competition for the benefit of the
citizen, businesses, and the economy as a whole.