Over the last two months, Israel and the entire world have been experiencing an unprecedented crisis.
Today, when life is gradually returning back to normal, we can say that the dramatic reality of the mandatory quarantine that was forced on the public, along with education system’s downtime and closure of various other sectors, have prevented the spread of the pandemic. However, the business sector has suffered a deadly blow. Many businesses have closed, while others had to cut their activity by tens of percent. Many employees had to take an unpaid leave and some were laid off, resulting in the highest unemployment rate in years.
Executives at the Ministry of Finance and the Bank of Israel estimate that the Israeli economy may deteriorate into one of the most significant recessions the State of Israel has ever experienced.
The market growth rate is expected to plunge and reach a negative growth rate of 5-6%, while even such somber predictions are somewhat based on hope that there will not be another wave of the pandemic later this year.
Now, when the storm that hit all markets worldwide has died down, and as we gradually return to normal life, we must return to our “God’s little acre” and facilitate market recovery across its various sectors, so that we could embark on a path of growth once again.
I believe that the reliefs granted so far do not provide a proper remedy that will allow small and middle market businesses to cope with the situation due to the massive shock wave created by the pandemic crisis, and many businesses are at risk of closing.
Quite a lot of businesses encounter bureaucratic obstacles when they apply for grants. Many entities that have applied for assistance from the State Guarantee Fund are experiencing difficulties, and currently, only 25% of 40,000 applications have been approved.
The well-known rule of thumb in economics and business management – “Cash is King” – becomes more important than ever during this period.
Most businesses become insolvent, even if they are profitable, because their negative cash flow does not allow business continuity.
Delayed grants that are not transferred to the businesses’ bank accounts on time, as well as the delayed loan grants, even if they will be received in the future, would be tantamount to an attempt to resuscitate a patient in a state of clinical death.
Businesses need oxygen to survive, immediately. Therefore, the Ministry of Finance must transfer the grants without any further delay!
When it comes to fiscal legislation in the field of taxation, the State must take immediate action to create certainty.
- The loss carry back mechanism must be applied in order to allow businesses to offset their losses in 2020 against their taxable income in 2017-2019, similar to the move made in the US following the subprime mortgage crisis in 2008. Even though this move involves budgetary costs, it is necessary.
- The coronavirus should be regarded as a natural hazard – the Income Tax Ordinance states that costs may be deducted to take measures to prevent soil erosion, floods and other natural hazards in the year, in which they were expended, even though they are essentially defined as capital expenditure, which should be distributed over several years according to depreciation regulations. To the best of my understanding, a virus that spreads widely and rapidly from one person to another actually causes damage to the human capital, and consequently causes damage to the business.
The government must provide employers with incentives in order to bring back employees who took an unpaid leave, while the goal is not to help the employers, but rather to help the economy and prevent employees on an unpaid leave from unemployment, which would make the crisis even more severe.
The responsibility to integrate the unemployed back into the workforce is not only economic but also social, since it is impossible to sustain a healthy economy without stable social anchors.
We must break free from the paradigms, to which we have become accustomed, and pursue an expansive fiscal policy that would halt the crisis, so that by the end of the fourth quarter of 2020, we would start noticing a change towards positive growth, and by early 2021, the economy would return to positive growth rates.
***The author is a Managing Partner at RSM - Shiff Hazenfratz & Co. CPA, and former President of the Institute of Certified Public Accountants in Israel.