Government deficit climbs to 4%, 'sharp increase' ahead due to coronavirus

Explaining the rising deficit, the Finance Ministry said "the effects of the coronavirus crisis began to manifest themselves on the Israeli economy and budgetary activity" in March.

By EYTAN HALON
Israeli Prime Minister Benjamin Netanyahu (R) speaks with Israeli Finance Minister Moshe Kahlon (L) during a cabinet meeting at the Prime Minister's office in Jerusalem January 11, 2018. (photo credit: RONEN ZVULUN/REUTERS)
Israeli Prime Minister Benjamin Netanyahu (R) speaks with Israeli Finance Minister Moshe Kahlon (L) during a cabinet meeting at the Prime Minister's office in Jerusalem January 11, 2018.
(photo credit: RONEN ZVULUN/REUTERS)
Israel’s fiscal deficit climbed to 4% of GDP in March, the Finance Ministry has announced, warning that the deficit will “continue to sharply increase” in the coming months as a result of the coronavirus outbreak.
The deficit during March reached NIS 15.9 billion ($4.45b.), the ministry said, compared to NIS 3.6b. ($1.01b.) during March 2019. Between January and March, the cumulative deficit amounted to NIS 13.3b. ($3.72b.), compared to NIS 9.3b. ($2.6b.) last year.
Explaining the rising deficit, the Finance Ministry said “the effects of the coronavirus crisis began to manifest themselves on the Israeli economy and budgetary activity” in March.
At this stage, the ministry said, the significant impact of the outbreak is on government revenues, resulting from a sharp decline in tax revenues, deferral of VAT payments and the absence of deposits from the National Insurance Institute (Bituach Leumi).
Earlier this week, the Knesset approved amendments to the Basic Law on the state economy, enabling the government to increase expenditures beyond the strict limits of its rolling monthly budget. The rare legislative move follows the government’s announcement of an NIS 80b. ($22.2b.) financial assistance package for businesses and workers.
Based on the amendments, approximately NIS 16b. ($4.44b.) of additional funding will be available for the National Insurance Institute. A further NIS 40b. ($11.1b.) will be available to fulfill additional promises made in the government’s aid package, including an NIS 8b. loan fund for small businesses.
Following criticism that the criteria required for self-employed workers to receive assistance was too restrictive, Prime
In a joint letter to Prime Minister Benjamin Netanyahu and Finance Minister Moshe Kahlon said on Wednesday that they would widen the net of eligible individuals, at a cost of NIS 1b. ($280m.).
More than 600,000 self-employed workers are now likely to be eligible for grants, they said, and maximum payments will be increased to NIS 10,500 ($2,936).
According to the new criteria, grants will also be available to employees with a controlling interest in the company, and self-employed workers can choose whether to submit average monthly revenues for 2018 or 2019.
The Finance Ministry also announced plans on Tuesday to establish a NIS 6b. ($1.67b.) loan fund for large businesses with a turnover exceeding NIS 200m. ($55.5m.), who have been harmed by the coronavirus outbreak. Loans offered may be worth up to 8% of turnover, while not exceeding NIS 100m. ($27.75m.).
“The state-guaranteed loan fund for large businesses, together with the previously established fund [for small businesses], will complete the overall response to cash flow requirements for the corporate sector affected by the coronavirus crisis,” said Accountant-General Rony Hizkiyahu.
In a joint letter to Netanyahu, Histadrut trade federation chairman Arnon Bar-David and Presidium of Israeli Business Organizations acting chairman Dubi Amitai called on the government to prevent the collapse of Israeli airline El Al.
On Monday, the Finance Ministry rejected a $350m. loan rescue plan submitted by El Al after approximately two months of negotiations.
“Countries of the world have recognized that ensuring the resilience of national and domestic airlines is not only a correct economic decision, but is also required to maintain national security,” wrote Bar-David and Amitai. “Without a state-guaranteed loan, El Al will collapse while you have all the means to save the company."