Kahlon outlines financial reform plan

Former Likud minister says 0 VAT plan will not help housing prices.

Moshe Kahlon (photo credit: REUTERS)
Moshe Kahlon
(photo credit: REUTERS)
Once and probable future politician Moshe Kahlon, best known for spearheading the reform that crushed high prices in the mobile phone sector, laid out a vision for banking reform on Thursday.
The government needed to spur competition in finance to help get credit flowing to small and medium businesses, the former Likud MK and communications minister said, speaking at a commercial event at the Azrieli Center in Tel Aviv for Drinka, an office beverage company, and Yazamco, a printer company.
While small and medium businesses account for most jobs, most of the money in the economy is geared toward the top of the food chain, he said.
“As long as there is not competition, this situation will not change,” Kahlon said.
Indeed, the Bank of Israel has noted that Israel does not have enough financial institutions to produce meaningful competition.
Former Bank of Israel Gov. Stanley Fischer said he tried in vain to convince large foreign banks to enter the market. Five big banks dominate it, and just a handful of companies deal with pensions and insurance.
The way to introduce competition, Kahlon offered, was for the government to issue 10 tenders for small or regional banks.
The banks would be required to lend to small and medium businesses, and in exchange would receive NIS 1 billion in loan guarantees from the state.
Since banks can lend out about 10 times the level of assets on their books, he argued, 10 banks with NIS 1b. each would pour NIS 100b into small businesses.
Similarly, the Bank of Israel’s supervisor of banks would not be limited to regulating the sector for stability, but also have to enforce competition, as regulators in Switzerland, the UK and Germany do.
Asked by The Jerusalem Post why he chose to focus on banking when the high cost of housing and food were priorities for many Israelis, Kahlon said he had reforms in mind for those sectors as well, but had been asked to speak about finance.
He dismissed Finance Minister Yair Lapid’s embattled 0 VAT plan as ineffective. “It does not deal with supply,” Kahlon said simply, echoing the most salient criticism of the housing bill voiced by the Bank of Israel and Finance Ministry professional staff.