Treasury: Judicial reform will cost NIS 50-100b annual growth loss

• Published date: 21 March 2023

According to the review presented by Gardos, the government's measures are liable to lead to a downgrade in Israel's sovereign credit rating that will increase the state's debt burden by some NIS 7 billion annually and bring about a loss of economic growth of about 5.6%

"As far as economic growth is concerned, a rating downgrade will be liable to lead to a rise in the government's expenditure on interest and to higher financing costs for the private sector and slower growth," the Budgets Division opinion states. "The burden of financing the public debt will rise by between NIS 2.3 billion and NIS 6.8 billion at full maturity."

The opinion puts the loss of economic growth at NIS 50-100 billion annually. "This loss of product will naturally lead to a loss of revenues within about a decade of NIS 15-30 billion, given the current tax burden," it states.

NIS 270 billion loss of product in five years

In the course of the discussion, the chief economist at the Ministry of Finance, Shira Greenberg, presented a position paper on the risks of the government's plan for the legal system being legislated. "Implementation of the proposed legal reform is liable to lead to a very significant hit to the Israeli economy," Greenberg wrote. In the past few weeks, Greenberg has been the only senior official at the Ministry of Finance to warn publicly and officially of the risks.

Greenberg cites scenarios from the academic literature that lead her to the conclusion that "damage to Israel's rating in the measures of democracy and governance can be expected to lead to a structural decline in the rate of growth per...