"Lately, we've seen a stemming in the rise in home prices, but the rapid rise is still continuing. Rents have stabilized because demand has been halved. We're seeing further growth in mortgages. They are high and this concerns us," said Governor of the Bank of Israel Dr. Karnit Flug at the press conference to mark publication of the Annual Report for 2013.
"On the other hand, there has been a decline in the risk characteristics of housing loans, because of the restriction imposed by Supervisor of Banks David Zaken, which have lowered the risk level. Housing starts and completions have exceeded 40,000 a year, and are higher than the annual flow of new home seekers. If these scales continue and consolidate, and include high-demand areas, we'll see a turnaround in home prices and even a decline."
Flug said, "The budget is under control and the deficit is unexpectedly less than projected. This year too, the deficit is expected to be less than 3% of GDP. This is very good news." She added, "However, the government should be reminded of its promise to reduce the deficit. Next year's deficit is projected to be 2.5% of GDP, by law. Data indicate that there is a need for NIS 12 billion in adjustments on the spending side in 2015 and NIS 8 billion on the revenues side. Increasing tax revenues is possible through the campaign against black capital, the cancellation of exemptions, and by raising tax rates. The more we can do this through the first two ways, the need for tax hikes will be lessened."
Flug honed her disagreements with Prime Minister Benjamin Netanyahu and Minister of Finance Yair Lapid over fiscal policy, saying, "When any new spending was agreed upon, the possibility of foregoing of some plans and cuts was taken into account, but no details were given. I am sure that they are working on this ahead of drawing up next year's budget. As for taxes, our lower revised growth forecast means a downward revision of tax revenues. Moreover, the matter of zero VAT has recently been added. We're talking about NIS 2.5 billion."
As for Netanyahu and Lapid's ignoring critical Bank of Israel recommendations, Flug said, "The adviser's job is to make his professional opinion heard and to present alternatives. The government has to decide. It is very important for our opinion to be heard. It's okay if our opinion is not accepted. Decision-makers have other considerations."
Published by Globes [online], Israel business news - www.globes-online.com - on March 31, 2014
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