Netanyahu’s Pandemic Stimulus Plan Tough Sell to Some Economists

In light of financial ills stemming from pandemic, Israeli PM announces cash for every citizen – no matter what their financial or employment situation

Israeli experts are roundly condemning a plan unveiled Wednesday night during a semi-impromptu televised address by Prime Minister Binyamin Netanyahu, who shocked his own economic advisers by saying every citizen would receive a cash grant to help tide them through the coronavirus slowdown.

The move, which would involve payments regardless of one’s financial or employment situation, was unanimously opposed by professionals in the Finance Ministry and remained unknown to several high-ranking Treasury officials prior to its announcement.

Economists are calling it a populist move that could hurt Israel’s global standing and fiscal stability.

The Media Line spoke with two economics professors, who expounded on what they saw as fundamental faults.

“It’s a terrible mistake, the type of move made by tyrants who want to appease their people and prevent unrest,” says Eyal Winter, professor of economics at Lancaster University in the UK and the Hebrew University of Jerusalem, where he heads the Center for the Study of Rationality.

It’s a terrible mistake, the type of move made by tyrants who want to appease their people and prevent unrest

“This isn’t an economic tool; it has no upside. It simply hands out money to people who don’t necessarily need it,” he explains.

“It’s an enormous government expenditure that will have substantial effects on the markets,” he adds. “Israel’s credit rating will take a hit [and] government bonds will become more expensive. It’s just a very bad instrument.”

According to Netanyahu’s proposal, which has yet to be approved by his cabinet, every Israeli over the age of 18 will receive a one-time payment of NIS 750 (about $220). Families with one child will receive NIS 2,000. Those with two children will receive NIS 2,500, and anyone with three or more children will enjoy a gift of NIS 3,000.

It is estimated that the plan will cost the state a total of NIS 6 billion.

“It’s inefficient and a waste of government funds,” says Prof. Eran Yashiv of Tel Aviv University, who over the years has consulted for, among others, the Bank of Israel and the Bank of England.

“It’s a ‘lump sum’ type of transfer, not dependent on income or wealth metrics,” he tells The Media Line, “so it’s not going to motivate the hiring of workers, which is what is badly needed. It’s going to be of very small help to the poor because it is spread over 9 million people.”

During his televised address, Netanyahu explained that a general one-time payment to all was the only means of bypassing the bureaucratic difficulties he claimed were the reason that many unemployed people were not receiving money promised to them. For the past several weeks, he has repeatedly blamed Treasury officials for heaping technical qualifiers and provisions that made it impossible for assistance funds to reach the public.

Winter is not buying that claim.

“If there are problems with the bureaucracy, they should be solved. That’s no excuse,” he says. “The state holds these figures [by which grants are decided]; the Tax Authority can discern people’s earnings and decide who needs this assistance and who doesn’t.”

On Thursday evening, facing a month-long surge in the number of coronavirus cases, there were reports that the government was considering a country-wide lockdown on weekends, resorting to extreme measures taken seven days a week in March and April.

Israel is currently ranked third among the Western world in the number of new cases per day per capita.

A decision for weekend lockdowns will only exacerbate the problems with Netanyahu’s new plan, experts say.

“The slowdown we’re experiencing isn’t one of demand, but of supply,” Winter explains.

“It’s not that people don’t want to spend money or are weary of the future, it’s that restaurants, places of business, wedding halls − all these are closed,” he continues. “So his central claim that transferring money to the people without distinction will heat up or reawaken the market is just a bunch of hot air. Everybody is in lockdown.”

It’s not that people don’t want to spend money or are weary of the future, it’s that restaurants, places of business, wedding halls − all these are closed. So his central claim that transferring money to the people without distinction will heat up or reawaken the market is just a bunch of hot air. Everybody is in lockdown

Netanyahu is in one of the worst stretches of his political career. Following mass protests in Tel Aviv and Jerusalem, polls show his support ebbing.

Many see his plan as nothing more than a desperate political stunt.

“There is a consensus [against this move] among anyone who knows anything about the economy – the Bank of Israel, all the Treasury officials,” Winter argues. “The fact he did this, even [going] against his own personal fiscal ideology, tells me there is something other than economics at play.”

To Tel Aviv University’s Yashiv, Netanyahu is simply unequipped to handle the crisis now crippling the country.

“[He is] voicing populist claims. His expertise and abilities are way lower, by order of magnitudes, [than what is need] for the extent of the problem,” he says. “Fiscal policy is not words – it’s actually doing things.”

Fiscal policy is not words – it’s actually doing things

Yashiv proposes extending “much more generous” support that is “more targeted, given to the unemployed or those on furlough. That will help firms recruit workers. The [government] doesn’t give real incentive to rehire workers.”

Alongside economic steps, a more “sophisticated and surgical” lockdown is needed, says Yashiv, whose studies and proposals on the subject have been published in The New York Times and Financial Times and implemented by governments and companies worldwide.

“I doubt this latest move will help Netanyahu [politically],” he concludes.

“He’s tried a lot of things lately to improve his political standing, but people understand they will have to pay for this policy many times over,” he explains. “It won’t make him more popular; if anything, it will make him less popular. It shows the public that he’s in such bad shape that he’ll do anything.”