Bank of Israel Sees 'Troubling Picture' in Government Investment

  • Flug says not enough money going to education, infrastructure
  • Says lag in these areas is hurting Israel’s growth potential

Bank of Israel Governor Karnit Flug assailed the government’s level of investment in infrastructure and education, saying it paints a “troubling picture” and is hindering economic growth. 

Flug also faulted Finance Minister Moshe Kahlon’s program to keep housing prices from soaring further, saying a main pillar of his reform is boosting demand rather than cutting it. The ministry had no immediate comment on her remarks.

The central bank and the government are at odds over what to do with an unexpectedly high level of revenue in the early part of the year, as the potential for early elections hovers. Prime Minister Benjamin Netanyahu and Kahlon have said they’d like to use the extra money to cut taxes, but Flug opposes such a plan.

“The good state of the economy is precisely the opportunity” to increase government expenditure on infrastructure and education, she said in a briefing to reporters marking publication of the annual report. “An examination of government activity in these two areas indicates a troubling picture.”

While tax cuts may give a short boost to the economy, investment in the country’s human and physical capital yields a much higher long-term return, she said.

“The low level of basic skills and infrastructure impairs potential growth in the economy,” Flug said.

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