What are the key challenges facing Israel's new finance minister?

Faced with an economy expected to enter recession, soaring unemployment and no government budget, it is difficult to imagine a harder welcome for Israel Katz.

New Finance Minister Israel Katz (photo credit: FINANCE MINISTRY)
New Finance Minister Israel Katz
(photo credit: FINANCE MINISTRY)
Israel Katz will have little time to settle into his new surroundings at 1 Kaplan Street. Faced with an economy expected to enter recession for the first time in two decades, soaring unemployment and no government budget, it is difficult to imagine a harder welcome for the country’s new finance minister.
“This ministry is the ministry of all ministries,” Katz said as he received the keys to his bureau from predecessor Moshe Kahlon on Monday. “We will do everything we can to make it easier for the public.”
Kahlon will have left a lengthy to-do list on the bureau table for Katz. Some bullet points will be aimed at easing the impact of measures to contain the coronavirus pandemic, others resulting from the long-term political turbulence, and others referring to long-term challenges that are well-known to the government and the public.
What are the key challenges facing Katz upon his entry to the Finance Ministry?
Restarting the economy
Katz enters the Finance Ministry as fierce debates continue over the reopening of the economy.
While Israel’s impressive decline in coronavirus infection rates has permitted many sectors to recommence operations already, deliberations regarding restaurants, theaters and the tourism sector are among the most sensitive to date.
Notwithstanding the possibility of a second wave of infection, the COVID-19 crisis has largely shifted from the health arena to the financial arena. A responsible recovery from this year’s inevitable recession, providing assistance to struggling employers and self-employed workers, and tackling a rapidly-expanding government deficit will require long-term strategic thinking.
In the short-term, more than one million job seekers are facing uncertainty over the origin of their next paycheck.
Thousands of business owners are currently looking toward Katz and new Health Minister Yuli Edelstein, hoping for welcome news that will enable them to start their long path toward recovery. Government support for struggling companies, in the form of loans and grants, has been underwhelming to date.
Additional stimulus packages and reduced bureaucratic barriers are required quickly, with the public unlikely to offer the new ministers much by way of a grace period. As Katz seeks to make an early mark on the ministry, representatives of impacted sectors are likely to be knocking on his door before the weekend.
Jobs, jobs, jobs

Although the true number is assumed to be significantly higher, the Employment Service has received reports of approximately 86,000 citizens returning to work since the first restrictions on the economy were lifted on April 19.
At the peak of the crisis, over 1.12 million people had submitted applications for unemployment benefits, representing more than 27% of the workforce. While the majority are expected to return to work, Employment Service deputy chief executive Moshe Yifrach told Army Radio on Monday that unemployment is only forecast to decline to 400,000 by the end of the crisis.
Especially as many workers’ eligibility for unpaid leave comes to an end in the coming days and weeks, finding alternative employment will be critical. While economic certainty and growth will lead to the reemployment of many, others will need assistance – to retrain, to upskill and to seek new employment.
According to data published by the National Insurance Institute (Bituah Leumi) on Sunday, almost half of all workers in the entertainment and hospitality sectors submitted applications for unemployment benefits.
While current outbreak trends are encouraging, Katz will already need to lay the groundwork for the next crisis. Whether a second wave of coronavirus resulting in another wave of unemployment and layoffs, or another crisis in years to come, the Finance Ministry needs to evaluate the current system of unemployment benefits, and whether other solutions applied by other developed countries could prove more efficient.
Budget

One of the greatest challenges facing the new government is to quickly develop and pass a new national budget, with ministries currently relying on a highly restrictive, monthly rolling budget to carry out their work since the 2018-2019 budget expired.
The budget will need to tackle the soaring government deficit, meaning unpopular cuts to ministry budgets and likely opposition from the Histadrut labor federation to wage cuts in the public sector. Demonstrating that he is eager to lead the way, Katz said on Monday that he would cut 10% of his monthly wage.
Time is already of the essence, as the two-year budget must be presented to the government within 55 days of its formation, and a first reading in the Knesset plenary by mid-July. Work on the 2022 budget must also start in the coming months, which should be approved by the government by the end of the year. Efforts will be led by a new director-general after incumbent ministry head Shai Babad announced his departure prior to the swearing in of the new government.
Challenges to passing the budget started to emerge even before Katz entered the ministry for the first time on Monday, as Calcalist reported the Finance Ministry staff’s opposition to passing a two-year budget at this stage. Estimates regarding unemployment rates, deficits and taxation revenues in 2021 are unlikely to be reliable, civil servants said.

Housing

Reducing the cost of housing was a key target for Kahlon, but his Mehir Le’mishtaken (price per occupant) program enjoyed limited success. After housing prices increased by more than 100% since 2007, assisting first-time buyers will be another major focus for Katz.
This time, however, attempts to reduce housing costs will need to be a collaborative effort.
Following the coalition agreement, the Israel Lands Authority is once again under the control of the Construction and Housing Ministry, headed by Ya’acov Litzman, and the Planning Administration has returned to the Interior Ministry, headed by Arye Deri.