Smotrich says emergency package for economy amid war is ‘broader’ than during COVID

Finance minister says businesses throughout the country that have been hurt during the ongoing war will receive compensation; state deficit will widen

Sharon Wrobel is a tech reporter for The Times of Israel.

Finance Minister Bezalel Smotrich speaks at press conference in Jerusalem on October 19. (Courtesy)
Finance Minister Bezalel Smotrich speaks at press conference in Jerusalem on October 19. (Courtesy)

Finance Minister Bezalel Smotrich on Thursday presented an emergency aid package for the economy, which he said is more generous than during the COVID-19 pandemic.

“Together with the Tax Authority we have been working together in recent days on formulating a comprehensive plan to assist the economy to ensure business continuity and support the Israeli public,” Smotrich said. “We are now presenting a plan that has many components and is much bigger and broader than it was even during the COVID period.”

Smotrich announced that businesses throughout the country that have been hurt during the ongoing war will receive compensation.

Israel declared war on the Hamas terror group after more than 1,500 terrorists broke through the fortified Gaza border on October 7 and murdered some 1,400 people, most of them civilians, including babies, children and the elderly. Many were murdered in their homes and their houses destroyed, and some 260 were massacred at an outdoor music festival.

“The Israeli economy is strong and can support the military and civilian war efforts as needed,” he said. “We have money and we will use it now for everything that is needed with a generous hand.”

The economic stimulus plan is built on two pillars: to provide cash flow relief and allocate grants for fixed expenses at a cost of about NIS 4.5 billion ($1.1 billion) for businesses whose incomes have been negatively affected. The outline also includes partial wages for workers who cannot come to their jobs.

Israeli fire brigade teams douse the blaze in a parking lot outside a residential building following a rocket attack from the Gaza Strip in the southern Israeli city of Ashkelon, on October 7, 2023. (Ahmad Gharabli/AFP)

Eligible for the grant are businesses with a turnover of up to NIS 400 million ($99 million) who have suffered a decline in income of over 25% in October or 12.5% over a two-month period.

“The purpose of the grant is for businesses to be able to continue working,” said Yogev Gradus, the Finance Ministry’s budget director. “Businesses that continue to work will earn more than those who stop working and receive grants.”

The government said it plans to establish a state-guaranteed loan fund of NIS 10 billion ($2.5 billion). Among the concessions are postponement of social security payments for the self-employed, deferral of VAT payments, extension of licenses and deferral of fees, and the advancement of negative income tax. The aid package also provides immediate compensation for employers and self-employed for reserve days.

In addition, the government will compensate businesses for direct damage to physical structures and equipment.

“This war will be very expensive and there will be a lot of expenses,” said Gradus. “The deficit will increase and revenues will decrease.”

“Every shekel that is spent will have to come back from somewhere at a time when interest rates are high to raise funds,” he added.

Smotrich announced that in the coming days, he will bring to the Knesset a bill to increase the budget framework to create “maximum flexibility for ourselves,” and estimated that as a result, the state deficit could widen to 3% or 3.5% of gross domestic product.

Israel posted deficits of 4.4% of GDP in 2021 and 11.3% in 2020 as the government introduced a NIS 196.3 billion ($48.6 billion) multi-year economic aid spending plan to help the economy deal with the coronavirus pandemic.

Israel’s fiscal deficit already swelled above the government’s deficit target for this year of around 1.1% widening to 1.5% of GDP at the end of September over the prior 12 months.

The government in 2022 posted the first budget surplus in 35 years of 0.6% of GDP as state revenues rose 4.8% to NIS 468.5 billion ($115.9 billion), benefiting from an exceptionally high increase in the collection of tax income.

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