Jerusalem - The Israeli central bank
threw its support behind a Finance Ministry plan to abolish
customs duties on various household items and offer young
working families tax credits on Thursday, but said the measures
should be made permanent to help the economy.
Israeli media have reported that Finance Minister Moshe
Kahlon's plan had upset Prime Minister Benjamin Netanyahu's
Likud party, as the measures had not been coordinated with them.
Kahlon heads the Kulanu party, a member of Netanyahu's
coalition.
But the government has been under pressure to lower the
price of essentials like childcare and consumer goods as well as
housing since 2011, when hundreds of thousands of Israelis took
to the streets to protest the high cost of living.
Kahlon announced the plan, estimated to cost 4 billion
shekels ($1 billion) annually, earlier this week as part of a
drive to reduce the cost of living.
"As they are measures that respond to structural problems,
and are not coming to serve a transitory need to stimulate
economic activity that is robust in any case, it is important
that the measures be permanent and are not terminated after a
year and a half," the central bank said on Thursday.
Bank of Israel Governor Karnit Flug in March urged the
government to use excess tax revenue to invest in infrastructure
and education rather than cut taxes further.
"At this stage, it is difficult to assess the precise cost
of the measures announced, as some of them are not completely
detailed, and they differ in the dates they go into effect, the
period to which they apply, and the process required for their
approval," the bank said in a statement.
The plan uses a significant portion of a reserve for special
needs set aside in the 2018 budget, the bank noted.
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Assuming the measures are permanent, additional funding will
need to be found to ensure the ability to meet fiscal targets
for 2019–20 while continuing to moderately reduce the country's
debt to GDP ratio, it added.
Israel's public debt fell to an estimated 62.1 percent of
economic output in 2016 from 63.9 percent in 2015, but that
ratio remains well above that of similarly rated countries such
as Slovakia, Chile, Slovenia and the Czech Republic.
"In addition to the plan presented, it is important that the
government continue to take policy steps that will lead to
improving the economy's human and physical capital
infrastructures, thus increasing the economy's long-term growth
potential," the Bank of Israel said.
($1 = 3.6633 shekels).