• Wed. Nov 29th, 2023

Treasury Officials Issue Warnings of Severe Costs of Judicial Overhaul

Mar 22, 2023

On Monday, senior officials of the Finance Ministry warned Bezalel Smotrich, the Finance Minister, about the severe impact of the judicial overhaul plans of the government.

They stated that the country’s growth could be stunted due to the plans, which would lead to significant losses in tax revenue and inflict considerable damage on the economy.

The implications

The economic implications of the planned judicial overhaul were presented by budget division officials to the Finance Minister during an internal meeting.

Shira Greenberg, the chief economist of the ministry also presented a position paper. The officials warned that the sovereign credit rating of the country would take a hit and economic growth would decline.

This week, intraday trading saw the shekel drop against the US dollar to 3.7, which is the weakest the currency has been in the last four years.

It comes as the coalition of Prime Minister Benjamin Netanyahu pushes forward with legislation that would give the government authority to appoint judges.

In addition, the proposals would also eliminate the ability of the High Court of reviewing and striking down legislation.

If the credit risk profile of the country deteriorates, it would mean that government debts would have higher financing costs and businesses would also see borrowing costs rise.

Likewise, foreign direct investments would also take a hit and this would slowdown economic growth in Israel.

The numbers

If this does happen, then there would be an increase of about NIS 3.2 billion to NIS 8.6 billion in the cost of financing public debt in a year.

According to the officials, the business financing costs are expected to increase between NIS 6.2 billion and NIS 8.7 billion.

A downgrade in the credit rating would result in loss of economic growth of about 2.8% to 5.6% as compared to forecasted growth.

In a decade, this would result in a loss of about NIS 50 to NIS 100 billion annually where the Gross Domestic Product (GDP) is concerned.

Taking the current tax burden into account, it would mean that the government would see its tax revenue drop by about NIS 15 to NIS 30 billion in a year.

The credit rating

Earlier this month, Israel’s A + credit rating had been affirmed by Fitch Ratings and had given it a stable outlook, citing the economic as resilient and diversified.

However, the ratings agency had warned that the credit profile of the country would see a negative impact if the planned judicial overhaul goes through.

It also noted that a number of countries that have introduced reforms that reduce institutional checks and balances have seen their World Bank governance indicators record significant declines.

These indicators are an important part of the sovereign credit model of the agency. The position paper put forward by Greenberg highlighted the damage to Israel’s governance indicators and democracy ranking.

It said that this would lead to a decline in GDP and would also reduce revenues of the state significantly in the years to come.

Attendees of the meeting included Greenberg, Smotrich, Yogev Gradus, the budget director, Shlomi Heisler, the Finance Ministry Director, Eran Yaacov, the tax authority director and Yali Rotenberg, the accountant general.

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