Yogev Grados, Head of the Budgets Department at the Ministry of Finance, commented at the Globes Investment Conference on the great challenges facing the Israeli economy due to the ongoing war. Speaking with Oren Dorey, Globes’ macroeconomics correspondent, Grados described how the fiscal deficit caused by ballooning defense spending was handled, and the difficulty of passing measures to narrow the deficit.
The conference session opened with a question to the audience about the defense budget, which before the outbreak of the war amounted to 60 billion shekels. How much will it be in 2025? In practical terms, the answer is that any number wins. “This is an issue that involves many variables and high volatility, especially since the security situations are unpredictable. At present, the estimate is NIS 117 billion, and if the war intensifies, we will have unexpected spending of another NIS 7.5 billion.” Grados said.
Grados said that the promised US aid amounts to $8.7 billion, including $1 billion for a project that will not affect the budget. Thinking about aid.
In response to a question about the fiscal deficit as a percentage of GDP next year, Grados admitted that it would be higher than expected, but said that it would not necessarily affect economic policy in shaping the budget. He explained: “Whether we end the year with a deficit of 3.9% or 4.8% of GDP is not what is important; what is important is the future graph of the deficit.” The main goal, he says, is to keep the deficit reasonable, so that the debt-to-GDP ratio falls in the long term. He said: “The budget for the past two years was supposed to contain a deficit of 30 billion shekels. We are now at 230 billion shekels in two years.”
Main focus: Taxation of undistributed profits
You said that if a scale falls, you will replace it with another one. But that’s not what happened. I talked about closing ministries, but that did not happen. Is the budget falling apart?
“Closing ministries is a few hundred million. It’s a matter of the government’s message and response and a sign of its seriousness, but yes, it’s not happening. I don’t like disintegration. The main challenge is taxing undistributed profits. There are a lot of eggs in that basket in the coming weeks.” This matter will be put up for discussion.
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Asked by Oren Dori whether revenues from this source could really reach NIS 10 billion annually, Grados replied: “We have made very conservative assumptions. The additional tax will also rise by another 2%. If anyone is thinking about distributing dividends This is the time. If this measure is not approved, it will be very difficult politically to pass alternative measures, such as raising interest rates, so in my opinion this measure will be approved, perhaps with changes.
– Lack of competition in banks
Not worried about tax planning?
Grados: “We are aware of potential tax planning moves, and we try to get ahead of them. But even if there are tax planning moves that we are not thinking about now, we will be able to fix the situation the following year. If we can take just 2% of the existing money, we will get more From 10 billion shekels, we have used conservative assumptions. We will reach solutions, even if the amount is not ten billion, but nine billion.
Later in the discussion, Grados spoke about financial regulation and market coordination. He said, “There is no real focus in the financial institutions market, but if they want to form a committee, let them do so and we will learn from it. But there is a lack of competition in the banking system.” . He pointed out that 94% of the credit provided to small and medium-sized companies comes from banks, and said that the Ministry of Finance is studying steps to introduce competition in the deposit and credit market for companies. “Banks are not passing on enough of the rise in interest rates to deposits, and that poses a problem for competition,” Grados said, adding: “We want to introduce entities that will take deposits and offer attractive interest rates, and offer interest.” Money as corporate credit.”
I’m not happy with the budget
How do you respond to those who say that austerity measures are imposed on the worker and that the budget does not contain enough growth engines?
“I am not happy with this budget, not because of the budget programme, but because we do not like taxing citizens and giving money to the defense establishment. If you had told me this a few years ago, I would have said it was a nightmare for me, but the security situation dictates this, and this must be financed. We tried to structure the “decrees” in a fair and economically beneficial way, but political constraints change the professional position. It is over. We will be able to look forward. There are infrastructure projects worth NIS 400 billion that we want to implement, and it must be focused. Our attention is on her.”
Grados concluded his speech by expressing his concern about the education system. He said: “Israel is suffering from a major educational crisis.” “The results for Israeli students indicate a sharp decline, especially in certain sectors of the population.” He said that 50% of the students currently in the first grade are Arabs and Haredim, and that without solutions to deal with these educational challenges, it will be difficult to ensure economic growth in the long term.
Globes Investment Conference is held in cooperation with Migdal, Bank of Jerusalem, Bagaya and Provimex.
Published by Globes, Israel Business News – en.globes.co.il – on November 18, 2024.
© Copyright Globes Publisher Itonut (1983) Ltd., 2024.
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