PM’s economic adviser: Invest natural resources income in Israeli infrastructure
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PM’s economic adviser: Invest natural resources income in Israeli infrastructure

National Economic Council chairman Prof. Avi Simhon calls for change in law to allow funds to be devoted to local programs, not invested overseas as planned

Sue Surkes is The Times of Israel's environment reporter.

An Israel Railways train passes the Ayalon Highway, near the Arlozorov Street 'Central' train station in Tel Aviv, August 23, 2016. (Miriam Alster/Flash90)
An Israel Railways train passes the Ayalon Highway, near the Arlozorov Street 'Central' train station in Tel Aviv, August 23, 2016. (Miriam Alster/Flash90)

The Prime Minister’s economic advisor, Prof. Avi Simhon, told a Knesset committee on Tuesday that funds from Israel’s natural resources that are supposed to be invested overseas via an interest-bearing sovereign wealth fund should instead be plowed into infrastructure development in Israel — a move that would require a change in the law.

Rebutting claims from MKs present that this would tempt the Knesset to misuse the money, Simhon, head of the National Economic Council, said he trusted MKs to “direct it to the right place.”

Simhon said that he had always disagreed with his NEC predecessor, Prof. Eugene Kandel, about investing the funds abroad so as not to flood the Israeli economy with dollars. Now, with gas prices down, and predictions that only some $12 billion would be in the wealth fund by 2030, the time was right to change direction and amend the law, he said, and the committee — set up to supervise the wealth fund — was the right body to propose it.

On the basis that Israel’s natural resources belong to its citizens, all companies profiting from natural resources are supposed to pay 62 percent on their profits. This is called the government take.

It is made up of corporate tax, royalties, and a special levy to be paid into the sovereign wealth fund, which is to be used only for projects that benefit the public in areas such as education and health.

The companies have already paid around NIS 12 billion ($3.5 billion) in corporate taxes and royalties. The sovereign wealth fund has not yet been set up.

In late July, the Israel Tax Authority told the committee, headed by Likud lawmaker Avi Dichter, that it expected payments to the wealth fund from all the companies producing gas, oil and a range of other natural resources to reach NIS 200 billion ($59 billion) only in 2064, with between just $12 and $13.4 billion to be collected by 2030.

National Economic Council chairman Prof. Avi Simhon addresses the Knesset committee on the sovereign wealth fund on August 11, 2020. (Adina Velman)

It also expected that the first NIS 1 billion ($291 million) needed to kick off the wealth fund’s operation would be deposited between the end of 2021 and mid-2022.

These figures contrasted with predictions made by Netanyahu over the past five years that the Israeli public would benefit from the natural gas bonanza to the tune of “hundreds of billions of shekels.”

Simhon believed the tax authority’s current predictions were reasonable and unlikely to change much.

Likud lawmaker Avi Dichter, head of the Knesset committee on the sovereign wealth fund, listens to National Economic Council chairman Prof. Avi Simhon on August 11, 2020. (Adina Velman)

He said that the only OECD country in the world with a sovereign wealth fund for profits from natural resources was Norway, but that that country was holding the equivalent of a few trillion shekels, putting it in a very different situation from Israel.

“If we were like Norway, I’d support the idea of the sovereign wealth fund [investing overseas], but there’s a huge gap between them and us,” Simhon went on.

“Let’s invest it immediately in Israel. I recommend that the committee looks for infrastructure projects that will bear more fruit than investing the money overseas,” he said.

Illustrative: Chinese foreign workers excavating tunnels in the Carmel in northern Israel take a break to have lunch. February 24, 2009. (Moshe Shai/Flash90)

He added that with overseas firms from countries such as China coming in to build major infrastructure projects, the country was paying out a lot in dollars anyway.

“I don’t think the government will oppose this if you suggest it. There’s no point banging your head against the wall when the circumstances change,” he said.

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