Fischer: Housing crisis caused by long planning
Bank of Israel governor submits last annual report before stepping down this summer, says low interest rate is not what pushed apartment prices up. He warns against increase in budget deficit, urges budget cuts
This is the last annual report submitted by Fischer before he leaves office this summer, and the first report since the swearing in of the new government.
"In 2007 through 2009, the deficit jumped from 0% to more than 5% without an increase in the government spending, all because of a global crisis and a rise in unemployment. So we can just imagine what will happen if we enter a recession with such a high deficit. We may reach the deficit levels of 2003 – over 6%.
"If we fail to address the need to cut or raise taxes, the deficit will reach 6.5%. we must take moves so as not to enter serious problems. We must handle it because the economy cannot grow if we don't handle it.
"This isn't the only thing the finance minister must deal with. There are structural problems as well, but if we fail to address the budget we won't be able to grow steadily. We'll face ups and downs and all kinds of undesirable things. So this problem must be dealt with in advance."
Fischer during press conference (Photo: Gil Yohanan)
Commenting on the arrival of gas from the Tamar field during Passover, Fischer said: "It's important to set up a foundation right away which will focus on the proceeds from the gas royalties and invest them abroad, so that the money received does not lead to an appreciation of the shekel and harm the exporting industry's competitiveness.
"It also has intergenerational justice: The gas is a gift from nature and we must not let all the money be used by this generation. We must keep it for future generations as well."
'If supplies are increased – prices can drop'
Addressing the housing issue, Fischer rejected claims that the low interest rate, which attracted investors to the real estate market, was the factor which pushed prices up.
He pointed a finger at Israel's planning authorities, noting that the longest phase in the construction of a house in Israel was receiving approval from district committees (five years) and receiving a building permit (three years).
"If supplies are increased – prices can be dropped, and this is the required move: Increasing the amount of available lands for construction and taking steps to shorten the construction planning period and the actual construction."
Fischer noted that central bank officials hoped home prices would fall as a result of an increase in construction rather than as a result of a drop in demands, and were therefore keeping interest rates low.
"Had we increased the interest rate, the growth would have been slower, the unemployment would have been higher and the building pace would have been lower. We encouraged construction and the Israeli economy benefitted. It doesn't require imports and it was important that we managed to boost activity in this area," the governor explained.
"When we wanted to push prices down, we didn't want it to happen by reducing demands, but rather by increasing supplies and continued construction."
'Bank executives' salaries unjustified'
Commenting on the salaries of banks' executives, Fischer said: "There are high salaries there which are difficult to justify. These salaries are approved by the boards of directors, and that is where steps must be taken.
"I don't think we can continue with this situation of paying sums perceived by the entire population as exaggerated, but we don't want to determine the banks' wages and prefer that the executives do so."
As for the middle class, the central bank governor said that "there is no doubt we must also deal with the problems of the lower classes, whose condition is worse than the average. I am certain that the State of Israel will continue to do so and that this finance minister, who has made an excellent impression on me and is working very hard, will also deal with the problems of the other classes."
As for the proposals to raise taxes, Fischer said: "It will be difficult not to raise taxes without significant cuts in the defense budget. If there is a need to spend more on defense, we must pay. A strong and stable country must pay for its defense as it is a necessity."
'Think about the poor too'
During his meeting with President Peres, Fischer said that "the report describes an economy which was in good condition in 2012, but not as good as in previous years. We grew relatively fast at a rate of 3.1%. My colleagues abroad would be very happy to have such a growth rate, and they don't understand why we're disappointed, but we have gotten used to a faster pace."
As for the expected budget cuts, the governor said that "there is an increase in spending commitments and it must be dealt with. I am glad to see that the new finance minister is taking the deficit problem into account and understands its depth.
"There is a lot of talk about the middle class, but it is as important to talk about society's poor and how they can enjoy the economic growth as well," Fischer added, responding indirectly to Finance Minister Yair Lapid's Facebook post, in which he said he was seeking ways to help families "earning, together, a little over NIS 20,000 ($5,485) a month."
President Peres commented on the economic situation as well, saying that "the Israeli economy is doing very well considering its objective conditions. One of the most difficult objective conditions is that all of the Israeli economy's expenditures are in accordance with the State's size, but the security issue is an economic challenge in which it is not the State's size that counts but the enemies' size."
