In recent weeks, morbidity due to the COVID-19 pandemic has increased, and this has been reflected in a halt to the economic recovery that began at the end of April. It has also recently been reflected in a reduction of economic activity due to the imposition of restrictions in order to halt the increase in infection and due to the public’s reaction to the increase in the risk of infection. Against this background, the government last week approved a comprehensive safety net for the unemployed, for self-employed individuals whose income has been negatively impacted, and for small and medium businesses. This safety net, the potential budgetary cost of which is in the tens of billions of shekels, is an important component in reducing economic uncertainty, and it supports the stabilization of demand in the economy.


Alongside this safety net, the government’s support for increasing demand in the economy is a desirable step. In a situation of such great uncertainty among households and businesses regarding the development of the pandemic, and in view of the continued negative impact to income despite the broad governmental assistance, and in view of the marked slowdown in the global economy, government support for increasing demand is an important tool in increasing employment and in restarting the wheels of the economy. For this reason, it is good that when presenting the safety net last week, the government announced that it is working to present a packages of measures that will support demand in the economy—both among households, which will increase private consumption, and among firms that will be able to make investments to increase their production capacity, thereby encouraging employment at this time. In this context, the measures to increase companies’ activity is very important for supporting the acceleration process.


The process proposed today—a grant to all Israeli citizens, totaling NIS 6 billion—can support an increase in demand to some extent. However, it seems that the money can be used in a more focused manner that will more intensively support demand with a more positive effect on the economy over time. Economic research shows that a one-off increase in income does not necessarily translate immediately into increased consumption by a marked share of the size of the grant, and that households tend to save a significant portion of such grants—particularly households whose income and savings enable them to maintain a similar level of consumption to what they had prior to the crisis.


There is sometimes no choice but to take rapid and widescale measures in order to respond to urgent needs. However, in the current situation, and particularly given the safety net announced last week, it is worth calibrating the package of measures to increase demand, such that it will be more focused on places that support demand much more intensively. As much as possible, it is also preferable to increase measures that will support a prolonged recovery of the economy and greater efficiency. Such a package can focus the transfers to households on those who have been particularly hard hit during the crisis and whose consumption is therefore limited, and in addition it can reduce costs and encourage businesses’ investments, which would preferably be orderly and clear- these in turn will help lead to increased employment and acceleration of the economy.


At this time, the financial markets are enabling the government to finance the growth in the deficit due to the crisis under easy terms. However, we must not think that we can increase expenditure and the deficit without limits. The crisis may yet worsen, particularly during the fall and winter, and we must conserve ammunition, both in financial terms and in terms of our credibility in the markets. The markets will judge us not only by the size of the debt, but also by the quality of the use of the amounts we are allocating to the fight against the pandemic.​​