While not every small business owner and self-employed person in Israel has broken down on national television, moving the film crew to tears and then getting to express his grievances in a phone call with the prime minister, most have good reason to feel sad, anxious or desperate, and let down by their government.
Many hairdressers, tour guides, shop owners, accountants, photographers and freelancers of all stripes feel the state has abandoned them in their time of need, with the economy in lockdown to stem the coronavirus pandemic.
To bring attention to their plight, they have taken to the streets, blocking roads and setting fire to tires, demanding that the government help them weather the storm.
“The government is completely out of touch about the depth of the crisis that is gripping the business sector,” said Roee Cohen, the president of the Israel Federation of Small Business Organizations, at a recent meeting of the Knesset Finance Committee. The Finance Ministry is leading Israel into an “unprecedented economic catastrophe,” he said, and many families will be left without food.
Data released by CofaceBdi Ltd., which collects business data on firms in Israel. warned that the coronavirus will wipe out as many as 25,000 businesses in Israel by the end of the year — a 50% jump in company closures to some 65,000, from an average of 40,000-45,000 in previous years.
The first businesses to be hit are those in the restaurant, tourism, aviation, transportation and entertainment industries, CofaceBdi said in a statement. In a second wave, real estate firms will also be hit, as consumers will not have money to spend, unemployment will remain high and people will default on their payments.
Since the government began introducing lockdown restrictions requiring most Israelis to remain at home except for essential needs, the unemployment rate has rocketed from around 4% at the beginning of March to 26.25% by mid-April, with 1,093,465 now jobless.
Small businesses and the self-employed “do not represent the majority of workers but are a very important part of the economy,” said Daphna Aviram Nitzan, director of the Center for Governance and the Economy at the Israel Democracy Institute (IDI), a think tank. “They are an engine of growth.”
There are some 530,000 self-employed workers and owners of small businesses in Israel, compared to some 3.8 million salaried workers, according to data provided by Federation of Small Business Organizations and the IDI.
These self-employed workers don’t have the social security benefits that salaried workers automatically enjoy if they lose their jobs, as in the case of the coronavirus pandemic, Aviram Nitzan told The Times of Israel. “The self-employed have no safety net.”
While their businesses had to halt activities because of the lockdown, the owners still have to pay rent and municipal taxes and pay back loans taken on equipment.
Ilana, a cosmetician from Ramat Hasharon who works from her home, has seen revenues decline to almost zero since the outbreak of the coronavirus, as clients stopped coming. She is lucky, she said, as she doesn’t have to pay rent because she works from home, but she still has thousands of shekels in expenses since she buys creams and lotions in advance and still needs to pay for them. She also needs to pay her national insurance fees, and her tax advances are still calculated on the basis of last year’s revenues, she said.
Ilana is worried about how soon her business will pick up after the lockdown eases. “When people don’t have money, one of the first things they cut back on is the beautician,” she said.
A survey by the IDI on the condition of self-employed and salaried workers shows that the vast majority of self-employed individuals (90%) expected a decrease in their income in March-April, and 43% did not expect any income at all. The survey was held between March 29 and April 2 among a representative sample of workers in Israel.
Most survey respondents (81% of employees and 91% of self-employed) have a fixed commitment they must repay each month, in addition to living expenses and current payments. About one-third (34%) have a loan from the bank or other financial body, about a quarter (25%) have a mortgage, 17% pay rent, and 5% owe money to a relative.
And yet, the government is not stepping up, and the aid it has offered to these businesses was too late and too little, the Federation of Small Business Organizations claims.
“The government is abandoning” self-employed workers and business owners to their fate, said Cohen, the federation president, in a phone interview. The crisis has revealed just how much this part of the working population – freelancers, the self-employed and small business owners – lacks necessary support.
The self-employed have long complained of mistreatment by state and tax authorities, who take large amounts of their income but provide none of the security nets enjoyed by salaried employees.
The nation was caught “with its pants down,” Cohen said. There were no contingency plans in place for this swath of the population.
The cabinet earlier this month approved emergency grants for self-employed Israelis whose businesses have been hit by the coronavirus pandemic.
Grants of up to NIS 6,000 ($1,700) were earmarked for businesses that have seen at least a 25% decline since the start of the crisis in Israel in March, compared to the same period last year.
For businesses that began operations after March 2019, the sum will be calculated against their average monthly income until the crisis. The business must have been in operation between September 1, 2019, and February 29, 2020.
The grant however would only apply to people whose average monthly income is over NIS 2,000 ($550), and under NIS 20,000 ($5,500), and are over age 20.
Workers with a taxable income of more than NIS 240,000 in 2018, and a taxable income of more than NIS 340,000 together with their life partner, would not be eligible for the grant.
The cosmetician Ilana said she applied online for the government grant and got it “within a few days.”
It took the government three weeks before it came up with the grants plan, said Cohen of the Federation of Small Business Organizations. And even then, the plan was “ridiculous and full of holes, like a Swiss cheese,” as it came with too many conditions and didn’t include a whole set of workers – like salaried workers who are controlling shareholders of a business – who are also in need.
“They left some 150,000 people without any answers,” Cohen said, as the organization led people onto the streets in protest.
Their cries have been heard, in part, and the Finance Ministry has agreed to increase the grant to NIS 10,500 for April; eligibility has been extended to those with a taxable income of NIS 1 million; and the grant is not linked to the income of a life partner. The issue of the salaried workers who are controlling shareholders has also been resolved, said Cohen.
Meanwhile, an NIS 8 billion coronavirus fund — earmarked for small and medium-sized businesses and backed by government guarantees — has turned out to be “one big bluff,” said Cohen, as banks are turning down loans to businesses that are at high risk – like restaurants, bars and event halls — because they will likely be allowed to open only at a much later date. Out of some 40,000 requests for the fund, he said, barely 1,000 had been approved. By Tuesday evening, Channel 12 reported, the number of requests had risen to 41,000, and only 1,900 had been approved.
Early on Sunday, the cabinet approved a slight easing of the restrictions that have brought the economy to an almost total standstill. However, nonessential small businesses, such as those in the culture, fashion, and beauty industries as well as shopping malls, could still face a long wait until they are able to restart operations. Pundits have predicted they will be among the last released from restrictions in any plan to end the lockdown.
Nimrod, 30, is the owner of seven generally packed bars in the center of the country. They have been completely shut down since the start of the pandemic, and revenues have dropped to zero, he said in a phone interview from home, where he lives with his wife and one-year-old daughter.
All of his 200 workers — bartenders, washers, cooks — are now on unpaid leave, he said. But he and his partner are still paying fixed costs of tens of thousands of shekels in rent on their premises, municipal taxes, internet and electricity costs, among other expenses.
“We were told we’d get a rebate on the municipal taxes, but meantime we have paid them for March and April and one of the municipalities told us there will be no rebate,” he said.
Nimrod has applied for the government grant but not received an answer yet. In any case, he said, the grant won’t improve his financial plight much, he said.
The two partners have taken out some small loans via their credit card companies, but when they approached their banker for the government-backed coronavirus loan they were told they weren’t eligible because their business was considered too high-risk.
“It is clear that we will be among the last to be able to resume work,” he said. “I don’t know what will be, but meantime, the whole summer season is gone.”
The Federation of Small Business Organizations has called on the government to provide compensation to businesses relative to their drop in turnover, as had been done during two wars — the 2006 Second Lebanon War and the 2014 Israel-Gaza conflict (Operation Protective Edge). They have also called for the temporary cancellation of municipal taxes and National Insurance payments, and asked for more credit and improved credit terms.
Timing is critical
Without adequate government aid, Cohen warned, whole sectors of the economy are likely to collapse. Adequate help would enable these businesses to stay afloat and gradually get back to work, he said.
“When the economy comes back at least there will be businesses” still standing, he said. “If there is no help given now, there will be no one coming back. There won’t be anyone left to compensate.”
Cohen is also calling on the government to release more of the economy from its gridlock, for example by allowing sports and fitness centers to gradually reopen, events halls to cater for a limited number of attendees, and preschool child care facilities to resume work.
To bring unemployment down, any government aid package must link the funds to the firms rehiring the employees they have laid off, said IDI’s Aviram Nitzan, referring especially to bigger businesses. The government must lighten companies’ tax and rent burden, and make the coronavirus fund loans more accessible.
“This is not the time to be so careful, this is the biggest crisis we have ever known,” Aviram Nitzan said. “The government is not understanding fast enough the need to give aid. Timing is critical; it is the difference between keeping a business alive after the crisis or dooming it to bankruptcy. It is a zero or one situation, with no place in the middle.”