The Finance Ministry’s chief accountant on Monday called for a sustainable solution to the crisis over the planned judicial changes to help restore confidence among international investors and sovereign credit rating agencies.
“We, along with the whole world, see the difficult internal public and political discourse in the country today,” the Finance Ministry’s accountant general Yali Rothenberg said at a conference of the Israel Manufacturers Association.
“Senior officials at the accountant general’s division and I speak regularly with the credit rating agencies and international investors. Everyone is eagerly anticipating… a sustainable solution, so that there will be a high level of certainty again,” said Rothenberg.
Calling the current sentiment and situation “troubling,” Rothenberg said that he was familiar with the attempts to reach a broad agreement on the controversial judicial overhaul and hopes that they will soon be successful.
Despite mass protests and opposition from leading economic voices and former policymakers calling for the protection of Israel’s system of checks and balances, the government has declared itself determined to press ahead with the proposed overhaul package. The legal changes would grant the government total control over the appointment of judges, including High Court justices, and severely limit the High Court’s ability to strike down legislation.
This week coalition party leaders said they intend to push through some of the controversial judicial changes before the Knesset breaks for Passover at the beginning of April, and then resume the advancement of the rest of the legislative package that makes up the government’s plans to radically overhaul the judiciary after the recess, urging the opposition to use the time for “negotiations.” Meanwhile, the opposition has refused to negotiate with the government due to the latter’s insistence on not freezing the legislative process, leading to a standoff.
Rothenberg also warned that broad agreement needed to be found so that the country’s World Bank governance indicators (WGI) would not be adversely affected. The WGI is an index that measures the quality of governance according to six criteria including rule of law, control of corruption, and voice and accountability.
Earlier this month, Fitch Ratings affirmed Israel’s A+ credit rating with a stable outlook, citing the country’s “diversified, resilient” economy, but warned that the planned judicial changes could have a “negative impact” on its credit profile. The rating agency also emphasized that some countries that have passed major institutional reforms reducing institutional checks and balances have seen a significant weakening of World Bank governance indicators.
Moody’s rating agency also warned that the planned judicial overhaul could weaken the country’s institutional strength and if fully implemented could be “credit negative,” posing a threat to the economy and in particular to capital inflows into the tech sector.
The tech sector employs just a tenth of Israel’s workforce but is responsible for over half of the country’s exports. In 2017, 92% of all income tax revenue came from just 20% of adults.
The government’s impending judicial makeover has already fueled uncertainty and fears among many investors and entrepreneurs, some of who are seeking to move their funds out of the country and set up shop elsewhere.
“Factory owners come to me and say they are interested in opening a production facility abroad, partnerships in the Emirates, or a place in Portugal,” said Ron Tomer, president of the Israel Manufacturers Association. “To date, we have managed to maintain the industry in Israel as a kind of microcosm of coexistence, in which Jews, Arabs and Haredim work together, but the crisis will affect us.”
Also speaking at the conference, Sharon Shulman, chairman and CEO of Ernst & Young accountancy firm in Israel, said that in the tech industry more and more new companies want to be incorporated as US companies and more existing tech companies want to be re-incorporated as US firms.
“They are afraid that… investors will not want to invest in Israeli companies,” Shulman said. “Our clients are concerned that there won’t be a judicial system to protect their businesses and assets, and they are making preparations to leave Israel as they wait to see what is happening with the legislation.”
He added, “A country where you no longer want to serve in the army as a reservist is also a country where you no longer want to pay taxes. This is happening right now.”
Hundreds of elite reservist Israel Defense Forces soldiers, including some in cyber units, halted their volunteer service on Sunday, making good on a threat issued several weeks ago in protest of the plans to radically alter the judicial system.
Marian Cohen, chairman of the Israeli High Tech Association, noted that a torn and divided population cannot serve as a base for a tech ecosystem.
“Managers of high tech companies are expected to make decisions, calculate and manage their risks, and act based on what’s best for their businesses,” Cohen told The Times of Israel on the sidelines of the conference. “If they decide that this place is not good enough to run their businesses, then they will run them elsewhere.
“We are a strong nation, and it would be very troubling to see that what was built here for 75 years and more could be destroyed in a couple of months… Adaptations need to be done carefully, thoroughly and in agreement.”
Tomer reiterated the recent call by major manufacturer and business organizations to jumpstart dialogue between coalition and opposition for a compromise deal on the planned judicial overhaul.
“There is a feeling of disintegration,” Tomer said. “It’s hard for me to stay optimistic but I call on all parties to stop fighting and start talking.”
“We need real leaders who have courage, leaders who are willing to take a real step toward negotiations,” he added.