Experts are in broad agreement about what the government’s priorities must be moving forward, but the way to finance those moves are less clear, and additional tax revenue will be needed to help out, former Bank of Israel governor Karnit Flug said Tuesday.
As Israel emerges from the coronavirus crisis, it requires economic growth that reaches all sectors of the population and addresses problems of inequality that plague society, she said in Jerusalem at the Eli Hurvitz Conference on Economy and Society.
The government must pass a budget so that it can address many of the needs that have been ignored over the past several years, Flug said.
Israel also needs to improve its transparency and bureaucracy, address core problems to upgrade the workforce and fix the housing crisis by freeing up more land, she said, adding that on these issues, there is general agreement.
But regarding the methods of funding these projects, Flug said Israel will have no choice but to raise taxes, despite the Finance Ministry’s insistence that it will not do so.
Reducing redundant positions within the government, as Finance Minister Avigdor Liberman stressed earlier in the conference, is important, but Israel’s expenditures in that sphere are already relatively low compared with other countries, she said.
Israel’s acceptance of a minimum corporate tax rate as part of the OECD’s digital economy taxation outline, as well as a global carbon-tax initiative, are good starts toward raising tax revenues, Flug said. However, certain special-interest tax exemptions that serve no economic purpose should also be eliminated, she said.
Israel should consider adding inheritance and gift taxes, potential tax-revenue sources that are used in dozens of OECD countries around the world, Flug said.
At the conference, Israel Democracy Institute president Yohanan Plesner spoke about the new government’s macroeconomic priorities.
“During the political crisis, we realized that our system isn’t working,” he said. “We must learn the lessons and stop the discourse of division, while also reaching a consensus that will allow our political system to make decisions.”
Manufacturers Association president Ron Tomer said: “Not all people can rely on the strength of the hi-tech sector. Action must be taken to reduce the regulatory burden and make it simple, cheap, strong, professional, innovative and green. During the COVID crisis, the business sector has been bleeding.”
Arnon Ben-David, chairman of the Histadrut labor federation, said: “For the past three years, we have been living in chaos and with the morbidity of the COVID crisis and in an unfathomable political situation.”
“The whole economy was run in a state of autopilot,” he said. “We thought that raising the minimum wage would make it difficult for the economy and factories. But we saw that this was not the case. On the contrary, the move spurred workers and contributed to higher productivity.”
“The self-employed and small businesses also need a safety net in which they can push a button and get unemployment just like the employees,” Ben-David said.