“I miss this place every day,” said former Governor of Bank of Israel Prof. Stanley Fischer this morning at the 2013 Globes Israel Business Conference. “These days, I am looking for work. The advice I received was not to accept a position until I had waited at least 6 months, which is in three more weeks, so it seems I am nearing a decision. Karnit Flug and I speak a lot, but I don’t discuss our conversations.”
Fischer addressed Finance Minister Yair Lapid’s decision to cancel the rise in income tax and said: “The matter of raising tax, reducing tax, etc., is an issue that I, too, needed to deal with. The important thing is that the Israeli market should be capable of handling shocks, but, in order to do so, it needs a very strong framework. Therefore, it is advisable to keep deficits low, and to reduce the debt-to-GDP ratio. This is a good principle for the Israeli economy.”
Fischer said that the Israeli and global economic situations were better today, and added: “The American economy is beginning to grow at a faster pace, people are less worried about the global economy than they were 6 months ago; the situation is a little better. I think 2014 will be better for the global economy.”
Regarding the government’s fluctuating taxation policies, Fischer said: “It worries me as an economist. It is better for tax rates to remain stable than to go up and down all the time.”
Regarding the high price of housing, Fischer said that this is not the biggest problem in the economy, and we should prioritize exports: “The price of housing is not the biggest problem in the economy. Export is about 40% of GDP, and its added value is 25% of GDP. This is the main driving force of the economy. The housing market accounts for 8-9% of GDP. It is not possible to manage the economy, and interest rates, and the exchange rate, solely to address the needs of the housing market. The availability of land is controlled by the government, not by the Bank of Israel. It is therefore a mistake to use interest rates in order to reduce the price of housing. This is not the most important factor, in terms of the economy.”
Fischer said: “There is no unemployment problem” in Israel, unlike other countries in the Western world, and if the Bank of Israel were to raise interest rates in order to address the price of housing, unemployment would rise. “Were the Bank of Israel to use interest rates to curb the housing market, we would have an employment problem, because interest rates would cause the shekel to appreciate. Adding 15% to the value of the shekel would cause a great deal of damage to the economy, and, therefore, the Bank of Israel has not done this. In the US, they would be very happy if they had what the Israeli public has.”
When asked if, in his opinion, the government is not interested in reducing housing prices because it benefits from the situation, Fischer says: “It is not a conspiracy for the government to want the bank system to be stable. The moment there is a problem in the system, there are problems throughout the economy. I hope the government thinks about the stability of the banks. It is possible that it would be better for everyone if the price of housing were to drop, but it needs to happen at a very slow pace. A sharp drop is not good. There needs to be a certain drop, like in 1996-2008, but not more drastic. The rate of the drop must be low.” Fischer declined to give numbers.
Published by Globes [online], Israel business news - www.globes-online.com - on December 9, 2013
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