Treasury warns about spending plans

Global slowdown will force government to curtail its commitments.

Negative developments in the global economy may force the government to adjust previous commitments and curtail additional spending in 2008 and 2009, Finance Minister Ronnie Bar-On said Sunday. "Israel is part of the global economy and therefore a spill-over effect from the negative influences of the developments in the global economy cannot be averted," he told the cabinet while discussing developments in the Israeli economy in the first quarter of 2008. "But I believe in the strength of the Israeli economy and its ability to withstand the turmoil in the global economy. In comparison to other world economies, the Israeli economy is at a good point of departure following four years of average economic growth of over 5 percent." Bar-On emphasized the importance of keeping a responsible economic and budgetary policy. "Our policy will focus mainly on continuing to reduce the debt-to-GDP ratio, cutting taxes and keeping expenditure limits," he said. "We will continue to be governed by a responsible economic policy, which will demand adjustment to the extent of the commitments which we levied on ourselves regarding the government's expenditure ceiling for 2008 and 2009, and agreeing to additional budgetary allocations." Bar-On said he would implement the necessary policy measures to meet the demands of a changing reality. "Therefore, I decided to provide assistance tools to exporters to encourage the shifting markets and diversification of Israeli export destinations," he said. "I launched a plan to accelerate depreciation on investment in fixed assets as an incentive for expanding investments in real assets, and we are also working on removing the bureaucratic obstacles for infrastructure projects." Following months during which local manufacturers and industrialists had asked the government for help over growing concerns triggered by the global credit crisis, the Finance Ministry last week announced plans to implement an accelerated-depreciation program of 50 percent on investment in fixed assets. The tax break for industrialists is granted for just one year to stimulate their investments in fixed assets, in an effort to drive future business growth. The accelerated-depreciation measure will apply to investment in machinery and equipment in industry, as well as in the construction, agricultural and hotel sectors. The Manufacturers Association of Israel said the measure was inadequate. "Taking into account the signs of a slowdown in the economy, as well as the stagnation in investments, imports of machinery and Treasury should stop stammering and adopt a courageous policy including an accelerated-depreciation plan of 100%, as it did in 2006, not depreciation of 50% as it suggests," the association said. The steps taken in 2006 had boosted investments by 30%, and therefore a more radical step was necessary to spur growth and exports, it added.