Kahlon announces growth, export support measures

VAT reduction to go into effect October 1.

By
September 24, 2015 19:46
2 minute read.
Moshe Kahlon

Moshe Kahlon . (photo credit: EMIL SALMAN/POOL)

Finance Minister Moshe Kahlon on Thursday announced a packed of measures to stimulate growth and boost exports, after a steep drop in exports nearly eliminated economic growth in the second quarter.

“One of our most important roles is to aid growth in the Israeli economy. Therefore, we are presenting a package of steps that will stimulate the Israeli economy’s growth,” Kahlon said.

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The steps include expanding state export guarantees by $800 million, providing direct support for $300m. of export insurance, and $50m. in guarantees to exporters applying for foreign tenders. They also include creating a loan fund for small and medium businesses, which will guarantee NIS 600m. in loans through existing financial institutions and establish a new loan track for farmers.

The state will establish a private equity fund, to be managed in the private sector, with a budget of NIS 225m. that can be leveraged into NIS 900m. worth of loans.

Further, Kahlon decided to implement changes in the capital investment encouragement law designed to attract multi-national companies investing in Israel.

Kahlon also listed several previously announced priorities, such as connecting industry to natural gas lines, paving the way for crowd-funding and other new forms of finance for companies, turning the Office of the Chief Scientist in the Economy Ministry into the National Authority for Technology and Innovation, and passing a bill known as the “Angels Law” to incentivize investments in young companies.

The steps to boost growth follow an anemic second quarter, where Israel’s economy grew a mere 0.1 percent.

On Thursday, the Bank of Israel said that several one-time events hit the second quarter particularly hard, and that it expected Israel to continue growing at a moderate pace.

That said, it lowered its overall growth forecast for 2015 from 3% to 2.6% in 2015, and from 3.7% to 3.3% in 2016.

Asked to comment on Kahlon’s plans to boost growth, BoI Gov. Karnit Flug said that the steps he proposed were “certainly in the right direction” and could help boost exports, whose current levels she termed “worrying.” Steps needed to boost Israeli productivity would also be necessary to boost growth in the longrun, she added, referring to increasing investment in infrastructure, investment, and education.

“There’s still a ways to go in that regard,” she said.

Chen Herzog, the chief economist at the BDO consulting group, agreed that Kahlon’s measures are positive, but fall short of more robust fixes.

“We believe that, in addition to the announced stimulus measures, action should be taken to increase investment in the economy through accelerating investment in transport infrastructure projects, such as accelerating the development of light rail, electrifying Israel Railways, and a significant increase in construction starts,” Herzog said.

Meanwhile, the Israel Tax Authority announced plans to put Kahlon’s VAT reduction into effect. Starting October 1, the tax will drop from 18% to 17%, a step that the Bank of Israel expects will bring prices down somewhat in the coming months.

Kahlon announced the reduction in VAT and alcohol taxes ahead of Rosh Hashana.


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