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A loss of tens of billions a year because of the reform. So why is Smotrich celebrating? - Walla! Of money


Otsar estimates that Israel's economy may suffer damage of tens of billions of shekels a year as a result of the legal revolution, even though the positions of the senior officials of the ministry were presented to the minister, Motrich published a puzzling announcement

A loss of NIS 100 billion a year?

The Minister of Finance celebrates (Photo: ShutterStock)

Is Israel's economy facing a crash?

According to the experts, the Israeli economy is expected to lose tens of millions of shekels - and some estimate as much as 100 billion shekels per year (even according to more cautious estimates, it is at least 70 billion shekels) because of the legal legislation, but while senior finance officials are waving red flags, even black - The Minister of Finance is celebrating.

Last night, for the first time, a discussion was held at the Ministry of Finance, with the participation of the Minister of Finance and senior officials of the Ministry, regarding the legal legislation and its implications for the local economy.

At the end of the discussion, the Minister of Finance announced that according to the data presented to him, Israel's economy is strong and solid - and made it clear that he will continue to lead it, with God's help (so in the original) with responsibility.

But while the finance minister was celebrating, the details that were really presented to him began to leak out - and these leave no room for doubt: the Israeli economy stands on the brink of an abyss - and the only one who insists on not noticing the dangers is the finance minister.

Chief Economist at the Treasury, Shira Greenberg.

Such a warning has never been heard by senior officials in the Ministry of Finance (Photo: Treasury Spokespersons)

More taxes?

The Chief Economist Division of the Ministry, Shira Greenberg, published the following assessment:

"Damage to Israel's ranking in the democracy and governance indicators is expected to result in a structural decline

in the growth rate of GDP per capita to the extent of 8.0 percent per year, which means over the 5 budget years following the passage of the reform, a loss of GDP of approximately 270 billion NIS in aggregate, as well as a decrease in state revenues amounting to approximately NIS 70 billion in aggregate, when a decade later the negative impact on state revenues is estimated to be approximately NIS 385 billion in aggregate over the next 5 years."

The Chief Economist further adds: "We note that the damage to the state's revenues may begin to be reflected

already in the budget years close to the date of implementation of the reform, and therefore if the proposed legal reform is implemented

In the near future it is expected that an update to the revenue forecast for the upcoming budget will be required.

We will clarify that the structural decrease in the growth rate of GDP per capita to the extent of 8.0 percent per year, on the basis of which the estimation in this paper is carried out, can prove to be conservative since it does not take into account the level of higher education in Israel and the structure of the Israeli economy, which relies to a significant extent on the high-tech sector, which is a mobile sector and biased towards foreign investments. And the increasing influence over the years of the ranking of the democracy and governance indicators on the growth in the economic literature,

the head of the budget department at the Treasury, Yogev Gordos, shared in the discussion the concerns of the department he is in charge of.

According to his warning - the damage is not only potential, but is already receiving initial expression on the ground::

"Continuing to the discussions held by the management of the Ministry of Finance, in the recent period it is possible to identify preliminary indications of the development of negative sentiment on the part of investors in relation to the Israeli market, when this is mainly reflected in the underperformance of the shekel and the local financial markets vis-a-vis the world. It is understood that there is difficulty in isolating the influence The proposed legal legislation from additional variables that affect these indices, mainly inflation and the economic slowdown felt following the attempts to curb it.

The review below will be based on the reference of the rating companies to the set of measures and their warning against the expected consequences of their adoption, including the weakening of the institutions that could lead to a downgrade of Israel's credit rating.

It will also be based on the negative sentiment in the markets and the fear of its worsening, which may have an immediate negative impact on the strength of the Israeli economy.

It should be noted that there is a difficulty in distinguishing between cause and effect when it comes to credit rating and that the possible risks of a credit rating decrease are interrelated and may have a negative effect on each other in a repeated feeding.


a decrease in the credit rating

, if it occurs, may cause the diversion of funds from the local economy.

This is because the meaning of the downgrade is a signal of increasing economic risk in the country and a decrease in the viability of investing in it.

As a result of the reduction of foreign investments in the country, difficulty may develop in financing the high-tech industry, infrastructure development, job creation and other sources of growth.

Second, the downgrading of Israel's credit rating, and partially also expectations of its downgrade, are expected to lead to an increase in debt and an increase in interest payments.

This will lead to the reduction of the civil expenditure part of the budget so that the public services provided by the government will be damaged or an increase in the tax burden will be required in order to maintain their level.

The expected effect on the exchange rate and inflation was also examined.

The downgrading of the credit rating and/or the deterioration of the sentiment towards Israel are expected to reduce the demand for investment in it, and naturally also the demand for the local currency, which will lead to a depreciation of the shekel.

Studies have even found a connection between announcements about a country's credit rating and volatility in the exchange rate in the period adjacent to the announcement.

The devaluation of the currency makes a significant contribution to the rate of inflation, as it makes the products and services imported into the country more expensive.

This development will also directly affect the interest rate in the local market.

In a scenario in which the shekel weakens, the Bank of Israel will be obliged to increase the interest rate, and this is beyond the increases that arise from the need to moderate the purely global and local inflation.

Alongside these effects, an increase in the recruitment costs of Israeli companies is also expected, which will harm their profits and growth.

The increase in uncertainty regarding the local economy will increase the risk of these companies in the eyes of investors and make it more expensive for them to raise foreign debt, which may harm their business activities and in turn intensify the damage to the Israeli economy.

According to a sensitivity analysis carried out as detailed below, a downgrade could lead to an increase in the government's interest expenses and financing costs for the business sector, as well as a slowdown in growth.

The burden of financing the public debt is expected to increase by approximately 3.2 to 8.6 billion shekels per year at full maturity and the burden of financing the business debt is expected to increase by approximately 6.2-8.7 billion shekels per year at full maturity.

In terms of economic growth, a downgrade could result in a loss of 6.5%-8.2% in economic growth relative to the projected growth, which in a decade will amount to a loss of approximately NIS 50-100 billion per year in real terms.

The loss of this product will naturally lead to a loss of revenue in about a decade to the extent of between 15 and 30 billion NIS given the current tax burden. A simulation was also conducted for the effect of an increase in the risk attributed to investments in Israel and conducting business activities there on the product of the high-tech sector and the number of people employed in it. In the simulation it was found that an increase in Israel's risk, if it had occurred in 2021, could have resulted in a loss of GDP of 6.1-6.4% and a decrease of between 8%-25% in the proportion of people employed in high-tech. It should be noted that other bodies have analyzed the expected effects of the legislation itself

on Israel's economy For example, according to the Aharon Institute for Economic Policy at Reichman University, the annual growth is expected to be at least as a result of the aforementioned legislation by an average of 1.4 percentage points in each of the years 2023-2025.

In conclusion, to the extent that the credit rating companies do explain that the legislative measures will weaken the institutions, their approval may lead to a downgrade, for all the economic implications involved.

Alongside this, the negative sentiment of the public and investors in relation to the proposed outline may in itself lead to negative consequences for Israel's economy, and this is even before the approval of the proposed legislative changes.

The government and the Knesset must take into account these significant effects when promoting the proposed legislative amendments

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The head of the budget department at the Treasury, Yogev Gordos: "The government and the Knesset must take into account these significant effects" (photo: official website, -)

The delusional response of the Minister of Finance

Even if the minister thinks differently from the senior officials of the ministry, such a prediction from twice the senior officials of the ministry should have turned on a red light, at the very least, for the minister.

However, those who read the announcement issued last night by the spokeswoman of the Ministry of Finance, can begin to suspect that Smotrich lives in a parallel universe:

"After the headquarters work of the departments of the Ministry of Finance, a discussion was held tonight by the management of the Ministry of Finance, led by the Minister of Finance, Bezalel Smotrich, about the possible economic consequences of the reform the Israeli economy.

In the discussion, Israel's macro data were presented and the possible risks and opportunities of the reform and the protest against it were presented," the announcement said.

But then comes the punch:

Minister of Finance, Bezalel Smotrich:

"First and foremost, I want to thank each and every one of you for the comprehensive work of the headquarters and the open discourse. We all have responsibility for the economy of the State of Israel and our role, along with analyzing and assessing the situation, is to prepare for any scenario, formulate budgetary and systemic solutions and turn challenges into opportunities. The Israeli economy is strong, and the data The current ones as presented in the discussion continue to point to the strength and great growth potential of the Israeli economy.

Stability and social cohesion are important elements for the State of Israel as a society and for the Israeli economy, which is always affected by expectations and needs stability."

The minister added: "My position regarding the reform is known and I believe that it has great opportunities for the economy and the economy, in the area of ​​legal certainty and renewed synergy between authority and responsibility in a way that will lead to a more flexible risk management model, which will lead to a reduction in bureaucracy and regulation and in any case to great growth.

However, it is our job to prepare for every scenario and formulate answers in the areas of continuing to encourage capital investments in all branches of the economy, developing the infrastructure, formulating a response to the challenges of the housing market in an environment of high interest rates and expected price drops, providing a response to the cost of living and more.

Our role is also to market to the markets and the parties with whom we are in contact in the international economic worlds the strength of the Israeli economy in the face of the international economic crisis, the strength of Israeli democracy and the confidence in the ability of Israeli society to overcome the current controversy, as we have succeeded in many controversies in the past, in a good way and even come out of it strengthened and united More, and I'm sure we all will.

With God's help, we will continue to steer the economy with broad national responsibility," said the Minister of Finance.

"There are great opportunities in the reform for the poor and the poor" - was he present at that discussion? (Photo: Roni Knafo)

  • Of money

  • news


  • Bezalel Smotrich

  • the chief economist

  • The budget department

Source: walla

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