Bank of Israel in it's annual report: The need to raise tax rates may arise

The Bank of Israel today publishes the annual report for 2020, which includes an extensive review of the effects of the corona on the economy. The bottom line, the report notes, is that there are considerable differences between sectors in the economy and society. Weaknesses of the socio-economic safety net and gaps between sectors.
According to the report, the approval of the state budget for 2021 is essential to set priorities and implement plans to accelerate growth, especially in the areas of human capital and investment in public transport, communications, energy and environmental infrastructure.
It also appears that the variability in the economic injury was largely due to the characteristics of the industries that suffered the bulk of the injury. These industries are characterized by a large number of low-wage workers, and the harm to the employment of these workers has been particularly severe.
The damage to these industries has also caused widespread damage to small businesses and the self-employed. The impact on household income and employment was particularly severe in the middle deciles and not in the lowest deciles. "The extensive assistance programs implemented by the government have made it easier for households and businesses. However, the crisis has highlighted the importance of establishing an economic safety net that can be deployed quickly when needed and allows for rapid assistance, targeted at crisis victims," ​​the report said.
The report notes that non-uniform damage was also evident in relation to non-economic well-being, thus highlighting the damage to social distance among the elderly, the damage to the well-being of low-income households was intensified due to housing overcrowding and less computer availability. For on the one hand it has launched the use of online technologies for remote operation in a variety of fields, including work, education, provision of commercial and public services, shopping and social connections, which has reduced economic and welfare harm, but the expansion of online activity has highlighted significant gaps by income, education, industries, professions , Age and sector.
The report lists Israel's challenges in emerging from the crisis, noting that it also depends on the immunization rate, but also on the global epidemic and the global economic recovery that will accelerate economic activity in Israel. Time of public debt to GDP ratio. For that, it will not be enough to dampen the special expenses related to the crisis, "the report notes.
The large and expanding structural deficit on the eve of the crisis indicates that further policy adjustments will be required: "Tax rates. Furthermore, fiscal policy must be conducted in an orderly manner and in accordance with long-term fiscal rules in order to maintain its credibility over time and to support the processes of prioritization."
In 2020, GDP in Israel decreased by 5.2%, with the impact on GDP leading to an abnormal decrease in private consumption of 5.9%, while at the same time there was an increase in the savings rate. The harm to employment was far more severe than the harm to GDP. Many workers were laid off, and widespread unemployment soared to an annual average of 15.7%, the highest rate in 50 years. The government's aid programs raised the public debt-to-GDP ratio from 60% to 72.6%.
The Bank of Israel notes that monetary policy will also be required to adjust the scope of the special tools it used during the crisis and to maintain confidence in its ability to achieve its objectives.
According to the report, many of the programs implemented during the crisis gave priority to aid and compensation considerations over efficiency and incentive considerations. It is important to adjust the rate of withdrawal of programs to the rate of recovery, due to the damages involved in the advancement or delay of this withdrawal. Some of the programs have already implemented such mechanisms, such as the stipulation of unemployment benefits in the rate of unemployment in the economy and the stipulation of assistance to businesses in the rate of reduction of revenue. The need for adjustments also concerns the policy measures designed to facilitate the conditions of financing. "
The recovery of the economy will lead to a decrease in the unemployment rate, but it may remain much higher than on the eve of the crisis due to business efficiency, changes in the structure of the economy, and difficulty in reintegrating into the labor market. Therefore, a policy to improve human capital is required.
With the exit from the crisis, the need will return to focus on the basic problems of the economy, especially low productivity, productivity gaps between sectors and inequality: "The importance of communications infrastructure. To all this must be added the ongoing challenge of maintaining the pace of construction starts that is consistent with the needs of the population over time.