The Ministry of Finance is inclined not to abolish the exemption for foreign investors on government bonds. This emerges from a discussion held yesterday between senior Ministry of Finance and Bank of Israel officials.
A few months ago, "Globes" revealed that the Bank of Israel was demanding that the tax exemption should be abolished in order to reduce the presence of overseas investors in the market, but that the Ministry of Finance refused. In the latest discussion on the matter, the Ministry of Finance argued that abolition of the exemption would have little effect on the exchange rate.
A senior Ministry of Finance source said today, "It is not clear whether such a step would be effective, and even if it would, it is questionable to what extent. Even the Bank of Israel understands that salvation does not lie in this kind of measure." The exemption encourages foreign investors to buy bonds, which are the main means of financing the government's deficit.
Following today's discussion, Ministry of Finance sources told "Globes" that the Bank of Israel believed that by means of further hedging of the government debt by the Accountant General, abolition of the tax exemption on government bonds, and further foreign exchange purchases by the bank, it would be possible to continue to manage the exchange rate. In other words, the Bank of Israel has no standby plan for dealing with the exchange rate and the damage to exports. Only a week ago, the shekel-dollar exchange rate fell to a low of NIS 3.46/$.
Furthermore, the Bank of Israel, particularly the governor of the bank, Karnit Flug, opposes setting a floor for the shekel-dollar rate, while the Ministry of Finance is canvassing the views of prominent macro-economists on the matter.
The Ministry of Finance said in response to the report: "The ministry does not comment on the content of discussions on economic policy."
Published by Globes [online], Israel business news - www.globes-online.com - on January 6, 2014
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