[stop-imf] Israel: IMF opposes war on poverty proposals

[Robert Weissman]

Globes [online]

IMF opposes war on poverty proposals
The IMF delegation opposes a negative income tax, restoring NII child=92s
allowances, and cutting VAT on food.
Zeev Klein 11 Dec 05 17:03

It is essential to tackle poverty, but not by restoring welfare
payments. It is necessary to deal with the heart of the problem, to
treat the root causes of poverty, and improve the situation in the long
term. It is important every measure be part of a responsible fiscal
policy, and that there be no breach in the budget framework. These are
some of the recommendations to be included in the International Monetary
Fund delegation=92s interim report on the Israeli economy. The report will
be submitted to Minister of Finance Ehud Olmert and Governor of the Bank
of Israel Prof. Stanley Fischer tomorrow. The final IMF report on the
Israeli economy will be published in Washington in early 2006.

The IMF delegation showed interest in Israel=92s war on poverty plan, but
reportedly expressed no explicit opinion in favor or against items in
the plan. However, their comments can be construed as implying that a
negative income tax would be costly and problematic, and steps should be
taken to ensure that it is not used to indirectly restore the National
Insurance Institute child=92s allowance.

It is implied that if Israel decides to implement this measure, it can
seek the help of relevant models developed by the IMF. Comments by the
IMF delegation also imply that there are other ways to help citizens
instead of cutting VAT on food.

The working assumption is that the IMF delegation will say they are
worried by uncertainty caused by the political situation and early
elections. There will also be comments on the lack of approval of the
2006 budget, and the consequent lack of progress on structural reforms.

In contrast to the past 13 years, when Jacob Frenkel and David Klein
were governors of the Bank of Israel, less criticism this year is being
levied against economic policy. Fischer is considered one of the world=92s
top monetarists, with both theoretical and academic, and practical
experience. Two weeks ago, Fischer announced the introduction of more
sophisticated monetary models at the Bank of Israel.

/Published by Globes [online], Israel business news - www.globes.co.il
<http://www.globes.co.il> - on December 11, 2005/