Regulatory reform and competition policy

Economic Survey of Israel 2009: Selected policies affecting the business environment

 

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The following OECD assessment and recommendations summarise chapter 5 of the Economic Survey of Israel published on 20 January 2010.

The  Policy Brief (pdf format) can be downloaded in English. It contains the OECD assessment and recommendations.

Contents

There is plenty of scope to improve the business environment…

The business environment is broadly conducive to economic activity but could be further improved. The establishment of low inflation has been helpful, as have reductions in the overall "size" of government and concomitant cuts in tax rates. However, the longstanding presence of a large public debt may have been crowding out business investment, and the flaws in education and low employment rates are compromising the skill base. Also, the OECD’s product-market regulation indicators suggest firms face excessive red tape in setting up and running business operations. The government intends to make the process of licensing new firms faster and less costly. A recent land reform includes provisions giving some lease-holders the option of technically owning land (or apartments). This is welcome but is unlikely to have a significant impact on property markets. However, the same legislation also aims to reform the Israeli Land Authority, which may well cut red tape in some aspects of property development.

Government support to business is wide-ranging, with three principal themes: promoting large-scale greenfield investment, small and medium-sized enterprises, and research and development. As elsewhere, the economic arguments for intervention rest on hard-to-measure spill-overs and externalities, and there are multiple options for intervention itself. In light of this, and as frequently recommended in reviews of OECD countries, the authorities should ensure there are good processes for assessing, modifying, innovating, and where necessary, pruning programmes.

Support for the agriculture sector remains substantial. Costs are held down by favourable water prices and access to cheap labour via the permit system for foreign and cross-border workers, though agreements have been reached that are reducing these supports. Revenues are notably supported by high seasonal import tariffs. The menu of support should be reduced and made less distorting, for instance through reduction in support payments based on input use.

… and challenges remain in network industries and transport infrastructure

Competition legislation and its enforcement by the competition authority (the Israeli Anti-Trust Authority) are in good shape. However, some areas of network-industry reform lag developments in many OECD countries. In particular, the Israeli Electricity Corporation’s stranglehold on production and distribution needs to be broken. More generally, though privatisation has been substantial, strong powers have been retained through "golden shares" in some network companies and other enterprises. Also, there appears room to improve oversight in the telecommunications sector: at present there is no independent regulator. And there is ground to be covered in privatisation and exposure to competition in post, sea port and water services. Rapid increases in population and economic activity have generated problems in transport infrastructure, chiefly road congestion in major urban areas and poor public transport in peripheral areas. This will require continued policy attention.

How to obtain this publication

The complete edition of the Economic Survey of Israel is available from:

Additional information

For further information please contact the Israel Desk at the OECD Economics Department at eco.survey@oecd.org

The OECD Secretariat's report was prepared by Philip Hemmings and Charlotte Moeser under the supervision of Peter Jarrett. Research assistance was provided by Françoise Correia.

 

 

 

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