Compensation Plan for Fixed Expenditure of Small and Medium Businesses Does Not Respond Exactly • Roi Cohen, President of the Israel Independent Bureau, proposes a new model: Reducing VAT for a limited period

The economy returns to activity, but some industries are still disabled or partially disabled. As of this week, only about 50,000 workers have declared the end of their compulsory leave (ILA). The challenge of the National Council of Economics in the Prime Minister's Office and the Economic Ministries is to reduce unemployment, which could reach 20% or more in the coming months. 

These offices are currently working on a plan that will encourage employers to bring back workers from the USSR and even hire new employees. The idea of ​​subsidizing workers harms productivity because it encourages hiring that is not necessarily necessary for business. The Economic Council understands this, but they are willing to pay the price to reduce unemployment. .

So far, state aid to businesses has been in support of taking staff out to the USSR. Business has been closed, some have been partially disabled, and they have had to take care of themselves. This week, their government support plan was released, beyond the immediate response of releasing employee employment liability: subsidizing some of the business's fixed expenses. Up to NIS 400,000 in four steps:

Businesses whose turnover is down 25% -40% will receive up to 10% of the business's fixed expenses; Businesses whose turnover decreased by 40% to 60% would receive a 20% grant from the business's fixed expenses; A reduction of 80% -60% of turnover will earn 35% of fixed expenses, and a decrease of 80% -100% in turnover will receive a grant of 50% of fixed expenses - all, as stated, up to a ceiling of NIS 400,000. Fixed expenses are the expenses that businesses are required to pay even when they are closed, such as rent, financing expenses (interest), maintenance and the like. 

The idea of ​​compensation for fixed expenses is clear: Businesses will themselves incur losses due to lack of revenue, the state will subsidize the actual expenses, the "living money". But this separation is entirely theoretical. For example, a business that purchases large inventory such as fashion or holiday home items - in many cases its fixed expenses are low and unrelated to its main problem - is the expensive inventory it holds. In many cases, mall businesses, for example, came with landlords to cancel rents during the downtime, so they were able to take care of the fixed expenses themselves, which became the key to compensation. In any case, this is a mechanism that probably only fits certain businesses. 

Less is it good?

Roy Cohen, president of the Israel Independent Chamber (Lahav), heard this criticism from small and medium businesses and sought to find another model that would more accurately answer the problems created for SMEs. He came up with a model offered by economists in Europe, which prevents a completely different concept: to encourage businesses to return to work, rather than make up for the past. According to the same model, the compensation to businesses will be through a reduction in VAT for a limited period, which is derived from the period in which their business turnover was reduced as a result of the Corona. 

"If a business is disabled for three months, it will receive a VAT exemption for the next three months. This will stimulate businesses to get back to business at maximum speed; It will require them to hire back the employees who sent to the USSR; it simply does not require the state to transfer money, but the businesses themselves not to transfer to the state; this will also create an advantage for customers, because businesses will want to roll out some of the benefit to customers in order to recapture and this model addresses the rule Business - without going into their spending structure, "Cohen says. Cohen says many support the program, including ministers, MKs and economists. But the Economic Council believes that the plan to subsidize fixed expenses, along with the plan that will be introduced to subsidize workers, provide a better response. 

Switch customers

About 420 tourist hotels are registered in Israel. The years before the corona they had beautiful years. The Dead Sea, Eilat and Tel Aviv in their heads reached an average of 70% or more with an average income of about $ 250 a night. This is despite the fact that it has been an increase in Airbnb apartments for almost a decade. In fact, the hotels have failed to meet the demand of foreign and domestic tourism. 

But this week, Midroog published a review titled "The Impact of Corona Virus Spread on the Hotel Industry", warning that "The spread of corona virus and dealing with it is likely to negatively impact the credit risk of companies operating in the hotel industry ... partial or full downturn of economies, including This is closing the hotels as well as anticipating the recession in 2020 in Israel, the developed countries and the G20 countries, with a significant increase in unemployment rates ... We expect a significant reduction in occupancy rates, the volume of income and flows of companies in the industry in 2020 and in the first half of the year ... In addition , We estimate hotel occupancy and price levels will be affected Even in the second half of 2020 and that the industry's recovery in 2021 will be at a moderate pace. " 

In Israel, three publicly traded hotel companies are listed on the stock exchange: Fattal, Isrotel and Dan. Since the crisis, the holdings of Fattal holdings have been cut by 50%; Isrotel fell about 40% from the end of February to March 23, but has since returned about 30% and now trades at about 10% less than the pre-crisis price. Dan Hotels has also fallen by about 36% by around March 23, and has since regained a large share of declines and is now trading about 12% less than the pre-crisis price.

Fattal is different from the others because it holds many hotels in Europe, which affects its operations and stock. But that difference also underscores the better potential of hotels in the country to return to activity faster than expected. Unlike tourism cities in the world, the country has a unique situation whereby the supply in the industry does not meet local demand, so many Israelis used to fly abroad - where it was cheaper than the resorts in the country. Now they are expected to fly less, together with the impact on the number of tourists expected to arrive in Israel. And that is how the hotels will replace foreign customers in the local, perhaps without damaging the occupancy - perhaps only for the price. 

Protecting the strong

The major threat to the Israeli economy was and remains the market structure. There is no ideological struggle here between the market concept and socialism - the modern communist system. The difference is between representatives of strong groups, such as the monopolistic labor organization, the Histadrut, which enjoys the secrecy of its reports and the protection of democracy.

The workers' organizations in Israel are the only ones who are not usually required to impose themselves on all employees in the organization - they have enough of a third's agreement. Elad Malka, CEO of "Our Interest," this week appealed to the State Comptroller to demand that he exercise his authority and audit the Histadrut's reports, which manages a budget of hundreds of millions of shekels and refuses to disclose its reports. this.