First Budget in Three Years and Releases Israel from Economic Uncertainty

Sometimes, when it comes to a country’s economy, the worst enemy is uncertainty. This was true of Israel which released its first budget in three years in early November 2021. It was just a razor-thin margin–a final result of 61 for and 59 against–that prevented a dreaded tie in the 120-member Knesset that would have halted funding for countless organizations and sent the election-weary nation back to the polls.

Israeli investments are expected to perform better in an environment cured of the persistent uncertainty that characterized the last few years in Israel. While the Startup Nation was breaking records raising funds for budding tech companies despite the pandemic, the zeal to invest in Israel was challenged somewhat by the ongoing political stagnation and repeated elections that did not result in a government.

The 2021 budget of 609 billion shekel ($194 billion) is one of the highest in Israel’s history and was passed by the smallest possible majority. Certain elements in the economic plan are sure to rankle members of the eight party coalition as well as various sectors in Israeli society, but this did not discourage general rejoicing at the news that a budget indeed was passed which indicates the current government may have staying power and provide stability to Israeli investments and the economy in general.

What Is In the 2021 Israeli Budget?

It is not surprising that Israel’s 2021 budget is controversial. The current coalition government is comprised of far-right, leftist, centrist, and Arab parties.  The desperation to get any budget past didn’t tamp down the desire for reforms in education, healthcare, the environment, transportation and consumer prices.

Some of the provisions are intended to expand regulations in the area of environmental preservation, such as the increased tax on plastic ware, whereas others ease regulations that have challenged business growth in the past. In addition, there are proposals to resolve the housing crisis and to contain prices on consumer goods. Finance Minister Avigdor Liberman called the budget, “The most social budget in the history of the country.”

The budget will ease restrictions on imports for consumer goods and agricultural products. The expected result is lower prices and increased competition. To ease rising housing prices, the budget will expand the supply of housing by stimulating construction. The budget will raise the tax on plastics, which is designed to protect the environment and expand public transportation.

Israel’s startups will benefit from an easing of regulations that have made it challenging for new companies to raise money. The new rules will cut through the bureaucracy and make it easier for small companies to do business. Israel’s fintech sector is likely to see a boost with banking reforms that will allow non-banks to offer similar services to traditional banks at competitive prices.

Israel’s tech sector may have a role to play in the push to digitize Israel’s government offices, banks, financial services, and transportation. There are provisions in the budget to fund AI technology, which may mean that tech companies may see some government grant money.

How Resolving Budget Uncertainty Boosts Israeli Investments

When asked what can negatively affect investor confidence, common answers may be a poor earnings report from companies in a sector, military conflict, a pandemic, or other macro-economic factors. However, paradoxically, the market can sometimes rise on the resolution of uncertainty even this is accompanied by bad news.

Understanding the effect uncertainty has on any economy requires analyzing investors’ decision-making. For instance, there is always an investment to be made somewhere. If it seems certain, for instance, that the winter is going to be tough, sales of coats and winter-wear will increase and investors will buy stock in these companies.

However, uncertainty doesn’t provide room for any investors to go and investment can often be halted. Israeli investments illustrate this concept perfectly. Despite the pandemic, despite the military conflict in the sping against Hamas, Israel’s high-tech sector performed well.

However, the uncertainty created by the lack of a government repeated elections, and no budget held investments back. Now that the budget has passed, Israel investments may behave like a coiled spring and shoot forward. This is an ideal time to invest in Israel.

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