The newly announced relief program, under the slogan "Nine steps to stimulate the economy big time," was unveiled by Prime Minister Benjamin Netanyahu and Finance Minister Israel Katz several days ago.
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No sooner had they completed their press conference than the media lashed out at them with cynicism and even disdain. The reporters who had arrived to cover the event were convinced that this was nothing more than an election stunt designed to put away any talk on the pandemic, the struggling businesses and the 770,000 jobless people. It was just about the upcoming vote, as far as they were concerned. Of course, we should view this move within its political context, but this should not be the only focus.
Just minutes after the press conference the pundits were in agreement that the plan would not jump-start the economy, that the handouts would be squandered and that this plan was just about bribing voters. But these very pundits could not answer very basic questions, because they never asked them: What is the overall cost of the plan? How much of it would actually be spent on infrastructure? And even after these figures were revealed, the pundits just repeated their claim that it lacked the necessary means to make the economy grow.
Well, the fact of the matter is that this nine-item plan will cost some NIS 15 billion ($4.6 billion), which is equivalent to about 1.26% of Israel's GDP. The part that involves direct handouts to Israeli households stands at just 0.85% of the GDP, while the rest is designed to go directly into infrastructure projects.
This is peanuts compared to the $1.9 trillion that the Biden Administration is pushing through Congress (about 9.5% of the GDP). Biden and his newly appointed treasury secretary, Janet Yellen, want all of the stimulus funds to go to American households, setting nothing aside for infrastructure.
Both the Israeli and the US plans are just proposals, and they could eventually change. But Biden's plan looks very much like the previous administration's stimulus package, and while it does include a means-testing mechanism to determine who qualifies for payments, it appears that most US households will get between $600 to $2,000 per capita. Republicans have slammed Biden's plan because it is supposedly skewed in favor of Democratic voters. Biden also wants to forgive student loans and other forms of debt. This is a very dangerous move.
The Katz-Netanyahu plan would grant Israelis direct stimulus for those who earn up to NIS 13,000 ($3,969), based on a means-tested gradient. Households would also get a special handout, regardless of their income, for every child.
Thus, the Israeli government's new relief package pays 9% of the median income, whereas in the US the figure is between 18% to 60% of the median income. As such, Israel's coronavirus stimulus appears to be too low, considering that the Jewish state's GDP-to-debt ratio is half of that of the US.
Israelis will go to the polls just before Passover, in late March. The optimistic scenario is that a new government will be sworn in as early as June and only then begin tackling the various economic issues. Do the detractors of this proposal really think Israeli businesses should wait that long and not get any stimulus because it could come off as a bribe to voters? Or maybe they think that there is no need for a stimulus package because everyone will have already been vaccinated by June? It is funny that these pundits have the gall to call the government "detached from reality" whereas they themselves are out of touch.
Since the start of the pandemic, the government has spent some NIS 70 billion ($21 billion) to help blunt the economic impact. This involves direct investment in the healthcare system, as well as direct payments to citizens and businesses. On a global scale, the Israeli figures are not that high. Thus, if another package is not passed over the coming months, Israel will be one of the few countries that has not continued with stimulus payments.
Those who want to criticize the plan should do so on its actual merits, and its missing components, not on the the fact that the government has decided to lend a helping hand to the people in light of the difficult situation. The opposition parties should present a counterproposal if they are so much against this plan. By all means, both sides of the economic debate should present their case, but it appears that one side is too keen to casting the plan as a bribe rather than attacking the plan's various provisions.
Several billions of shekels in the plan are already earmarked for supporting businesses according to a formula that has been in place since the start of the pandemic. This form of support is designed to compensate businesses for lost revenue. The fact that several billions of shekels will now go to various households is nothing new, it is just repackaging of the first stimulus package with a new means-testing mechanism.
Some NIS 500 million ($152 million) that are supposed to go to supporting disabled Israelis and another NIS 1.5 billion ($460,000) will go toward encouraging employment. The idea of grating unemployment benefits to those who return to work is interesting and should be considered in other forms of welfare, as this could correct the biggest flaw in government checks: they often encourage people to prefer staying out of the job market.
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In any event, the biggest challenge right now is finding a way to discontinue with the special mechanism that allows workers to be paid despite being on unpaid leave. Employers and employees will have to choose between work and unemployment; this is the only way in which we can find out how many people are truly out of work, and most importantly, it will put an end to the massive loss of GDP created by this system.
Crisis creates opportunity, despite its many unknowns. Our job, as well as our leaders', is to try to put some certainty in this mess. Delaying debt repayments across the board and paying people who are on unpaid leave only adds to the uncertainty. What this plan lacks is a way to address the growing debt load Israelis have taken. This dangerous situation must not be ignored.
