A matter of life and death for small, medium-sized businesses
While they might not generate dramatic front-page headlines, small and medium-sized businesses are the lifeline of the nation.
Comprising 97% of all companies in Israel, they are Israel’s major growth engine. They are also bearing the brunt of the economic damage wrought by the novel coronavirus outbreak, as High Street businesses are shuttered and employees enter quarantine.
Increasingly stringent measures announced on Monday evening by Prime Minister Benjamin Netanyahu tightened the noose around both public- and private-sector activity, accompanied by promises of additional financial aid. Businesses employing more than 10 workers will be required to reduce the quantity of staff present in the workplace by 70%.
Notably, the government announced that employees placed on unpaid leave, with six months of consecutive employment rather than a full year, would be eligible for unemployment benefits. Israeli Employment Service director-general Rami Garor told Army Radio some 100,000 new benefit claimants attempted to enter their website on Monday night following Netanyahu’s announcement, causing the website to crash.
While increased access to unemployment benefits is undoubtedly a welcome move, a large question mark hangs over the very survival
of many businesses. The deferral of payments, including National Insurance Institute obligations and municipal taxes, may prove to be of limited assistance to self-employed workers and companies with minimal to no income.
To date, Finance Minister Moshe Kahlon has promised NIS 8 billion in support for businesses, primarily in the form of low-interest, government-backed loans. On Monday, he vowed to inject an additional NIS 5b. to assist companies, including limited grants for self-employed workers.
Many businesses of a larger size, however, are also crying out for grants. Loans must be paid back with significantly reduced revenues.
“We live in a reality where most businesses in the market are consumers of credit, some in an uncontrollable manner, which is incompatible with their repayment capability or scope of their operations,” attorney Hayut Greenberg, who specializes in company rehabilitation and insolvency, told The Jerusalem Post.
“Therefore, establishing a loan fund that will flow with increased credit will only increase the value of the balloon and create only an illusion of a situation,” she said, emphasizing that offering large loans would ultimately exacerbate credit problems already faced by many businesses.
As Netanyahu placed the public sector into a state of emergency, the Finance Ministry and the Histadrut labor federation announced they had reached a collective labor agreement for government employees. Workers not deemed critical during the crisis will be placed on annual leave. There is no such protection for many private-sector employees.
The latest package of measures is “definitely in the desired direction,” Bank of Israel Governor Amir Yaron said, adding that it is important to create a “significant and well-defined financial safety net in the budget” to give the government sufficient leeway in managing the crisis.
That may prove difficult. During a press conference last week, Netanyahu alluded to limits placed on the current government, which has been operating on a rolling monthly budget since the start of the year and is facing a growing fiscal deficit.
Speaking to Army Radio on Monday, National Economic Council chairman Avi Simhon estimated that a full shutdown of the economy would likely cost the state at least NIS 50b. It will be necessary for the government to “significantly increase” the fiscal deficit to compensate businesses and support the economy, he said.
To funnel substantial and much-needed funds to both the private and healthcare sectors, a functioning government is needed. One of the first tasks for an incoming government will be to pass a budget, likely based on 2019 figures. That budget is necessary to fight the coronavirus on two fronts: both in healthcare and business. •