The Governor’s discussion of the grant to all Israeli citizens:
The revision made to the grant to every citizen is in the correct direction from an economic standpoint in terms of encouraging demand, in contrast with the original program to which I responded in the previous discussion. This is because, to a certain extent, it allocates the sources to the group with a higher marginal tendency to consume. However, the revision to the program increased the resulting expenditure even more.
The economic safety net announced by the government on July 9 is an important element in reducing economic uncertainty and stabilizing demand in the economy, and it supports salaried employees, the self-employed, and businesses that have been negatively impacted by the crisis. At the same time, we must continue working to create as much health certainty as possible, so that the various economic measures will be more effective, since these are complementary tools.
In parallel, it is also important to advance an orderly and inclusive program that will focus on lowering the costs of employment for firms and provide incentives for investment. These will increase businesses’ demand for workers. The increase in employment that will result will increase the security of households regarding their permanent income, and will thereby support an increase in consumption in the present, and will create a feedback of increased demand and employment in the longer term and in a prolonged manner.
Israel’s fiscal expansion is not exceptional by international comparison with other advanced economies. Around the world, countries are being forced to increase their deficits and to take on debt in order to prevent greater damage to the economy. However, it is important to remember that the risk attributed to Israel is grater than that attributed to stable countries in Europe with a similar debt to GDP ratio. Therefore, it is important to avoid a sense that there is no limit to the ability to increase public debt. We must make informed use of the amounts being spent so that they contribute to the ability of the economy and of households to rapidly get out of the crisis once the health restrictions are removed. At this stage, there is no concern over the ability to finance the economy over time, but the longer the crisis persists, and the greater its negative impact is, the more important it is to use budgetary sources efficiently. Therefore, the economic sphere currently requires risk management with the intelligent use of the freedom that remains for budgetary policy to react later on.
The Governor’s discussion of the program to accelerate digital services to the public and promote digital learning:
The program to accelerate digital services that was presented here is welcome. This is a program that provides a response to a need that exists in any case, and leverages the opportunity that has been presented due to the crisis in order to respond to the need more forcefully. The government, with all of its extensions and services to the citizen, can, and even must, be a significant catalyst for leveraging the digital world. This is a process where the proper and successful implementation will support the propulsion of the economy and will itself be an investment with a very high yield for the Israeli economy over time.
Fortunately, elements of this program correspond with the Bank of Israel’s recommendations in the Comprehensive Report on Productivity that we published almost a year ago. This is true during “normal” times, and is even more true at this time. Steps such as reducing regulation, leniencies for businesses, making training and digital learning more accessible, adapting financial services and making them more accessible, and advancing to uniform and inclusive digital identification for the citizen, will all help promote an environment that encourages innovation and competition for the benefit of the citizen, businesses, and the economy as a whole.