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The growth was surprisingly good, the debt will remain for a century: 6 comments on the budget deficit

The data presented by the Ministry of Finance show that Israel entered the corona crisis with a relatively high deficit, and did not spend more compared to other developed countries.

Of the 85 billion shekels allocated for aid, the state actually spent only about 69 - and the huge debt accumulated will also be paid by the children of the babies born this year

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• Deficit

• State budget

• Corona virus

• Ministry of Finance

Sonia Gorodisky

Monday, 11 January 2021, 22:57

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In the video: Business owners fear closure of stores following crossing the morbidity threshold (Photo: Sonia Gorodisky)

In the shadow of the corona crisis, the Ministry of Finance announced tonight (Monday) that the deficit for 2020 reached 11.7% of GDP, NIS 160.3 billion.

This is the largest deficit since inflation in 1985, which led to extreme debt and the calculation of the state budget in dollars over several years, and marks a three-fold sharp change from the deficit in 2019, which was 3.7% of GDP or NIS 52.2 billion.

The increase in the deficit is explained by an increase in expenses following the economic plan to deal with the corona crisis, which took NIS 68.6 billion from the budget, and a decrease of NIS 22.9 billion in the volume of Social Security revenues.

However, the deficit did not reach the pessimistic forecasts of the Ministry of Finance, both for obvious reasons and for those who raise questions, and some points that emerge from the published document should be noted.

The highest deficit is 35 years.

Shops on Allenby Street in Tel Aviv (Photo: Reuven Castro)

1. With respect to the OECD: the deficit is high, spending is low

The data presented by the Treasury show that the deficit in Israel is one of the highest in developed countries - only the United Kingdom, Canada, the United States, Iceland and Australia overtake it.

However, it should be noted that Israel entered the crisis with a relatively high deficit, 3.8% of GDP, and the increase in the deficit following the crisis was actually lower than the OECD average - 7.9% compared to 8.6%.

In other words, Israel entered a crisis with a relatively high deficit, but did not spend more compared to other developed countries.

2. Partial extraction of assistance programs

The relatively low expenditure is due, among other things, to the partial exhaustion of aid programs for the corona crisis.

The implementation rate of the economic plan in cash was 81% - out of NIS 85 billion, the state actually spent only about NIS 69 billion.

A section dedicated to "business continuity", which includes assistance and grants to businesses, suffered under-execution and averaged 72%.

On the other hand, the expenditures intended to provide a "health solution", including the Ministry of Health's preparations, stood at 104% at the end of the year.

Cash expenses are the amount of money actually paid, and they do not include liabilities.

Out of a plan of NIS 137.2 billion allocated to aid programs in the years 2021-2020, the total implementation of the plan, which includes future liabilities, reached NIS 110 billion at the end of the year, also about 80%.

The Ministry of Finance explained that part of the plan was not implemented because the predictions were more severe than the actual reality.

More on Walla!

NEWS

NIS 160 billion a year: The deficit for 2020 - the highest in the country's history

To the full article

Part of the assistance plan has not been implemented.

Carmel Market (Photo: Reuven Castro)

3. Despite three closures: only a slight decrease in tax revenues

The total collection of taxes in 2020 amounted to NIS 310 billion, a figure that is only six and a half billion shekels compared to last year.

There are several reasons for the slight decrease in tax collection.

One is that the main victims in the Corona period were low-wage earners who did not reach the tax threshold, and their contribution to state revenues was less significant.

Another reason is that in the periods between closures the economy returned to activity relatively quickly and there were not many trips abroad, so the money remained in Israel.

In some industries tax collection even increased compared to last year, such as capital market tax. Finished profits tax Authority collected last year 4.8 billion, 25% more than a year earlier.

in contrast, income tax excise, designed to reduce the consumption of products, including, among other things, fuel, tobacco products and alcohol, amounted in 2020 16.5 billion versus 19 billion This is a decrease of 12%, mainly due to traffic restrictions and a reduction in economic activity.

4. The growth was surprisingly good, but unemployment will remain

Even after the corona crisis ends, the population is vaccinated and the economy opens up, the return of workers to the economy will be slow and gradual.

According to the pessimistic forecasts of the Ministry of Finance, given at the beginning of the month, the unemployment rate next year will be 8.9%.

The moderate decline in tax revenues inevitably entails dismal information.

The main harm to low-income recipients will not end soon, and a significant proportion of the unemployed will find it difficult to return to the labor market due to fewer labor skills and prolonged time outside the labor market.

The good news is that according to estimates by the Ministry of Finance, the decline in growth in 2020 will amount to only 3.3% this year, lower than the previous forecast of the Ministry of Finance given a month ago and stood at 4.2%.

Unemployment will remain high.

Closed store at Castina Junction (Photo: Reuven Castro)

5. Debt for one hundred years

The government's huge debt was financed by bond issues in Israel and abroad.

The Ministry of Finance raised NIS 74 billion in foreign countries and the rest in Israel, in various series of short-term and long-term bonds, the most expensive of which was issued for a hundred years. This means that the children of the babies born this year will also pay off the huge debt.

6. Stable credit rating

On the plus side, Israel's credit rating has already been approved, and remains unchanged with a stable outlook for the future, so it is likely that at least in the short term there is no danger of a downgrade.

The credit rating indicates the ability of the state to repay the debt and is given based on past data and the conduct of the state.

The two major credit rating agencies, S&P and Moody's, confirmed Israel's rating even before the election was announced, and it remains relatively high, so that Israel can continue to raise debt at attractive interest rates.

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