Remarks by Angel Gurría, OECD Secretary-General
8th December 2013, Tel Aviv, Israel
(As prepared for delivery)
Minister Lapid, Ladies and Gentlemen,
It is a great pleasure to be back in Tel Aviv to present the OECD’s third Economic Survey of Israel, and the second since Israel joined the OECD in September 2010.
I would like to take this opportunity to thank, in particular, Ministers Lapid and German for their unyielding support for our work in recent months. I would also like to thank Governor Flug for the continued support and assistance of the Bank of Israel, and to wish her well at the outset of her term as Governor.
Active participation of the country under review not only enhances the quality of our work, it helps us make our recommendations more relevant to the local social, economic and policy context. You are helping us help you!
With the legacy of the global financial crisis still holding back recovery in many countries, Israel’s growth rates are the envy of much of the rest of the OECD. Unemployment is at record lows. Inflation is under control. And your high-tech sector continues to attract admiration worldwide.
All the building blocks of a strong economy are present and accounted for, but its gas production that could be the real game-changer. Already, we expect that with the Tamar gas field coming on-stream, a full percentage point will be added to GDP growth this year, and a further 0.7% in 2014.
If you use this windfall judiciously, and guard against the symptoms of ‘Dutch disease’ that can accompany the exploitation of natural resources, gas production has the potential to underpin economic strength for years to come while giving Israel a degree of energy independence of far reaching consequences.
Raising living standards for all Israelis
Economic growth, however, should be seen as a means rather than an end. A strong economy should be like a glue that helps society come together, not a filter that separates the rich from the rest.
The ultimate goal is to translate growth into the highest possible living standards for the greatest number of citizens possible. And this is an area where Israel can do better. You have strong growth, but you need to make it more inclusive to tackle persistent poverty and inequality.
One in five Israeli households is below the relative poverty threshold, and the ratio is over one in two among the Arab-Israeli population and in the rapidly growing Haredim community . Despite some improvement, employment rates among Arab women and Ultra orthodox men are still far below those of the rest of the population.
The best way to boost employment in these groups is make sure they get the skills and the education they need. The latest PISA results, published just a few days ago, show us that Israeli students’ average scores are improving across all three of the subject areas tested – mathematics, reading and science. This is good news, but there is still a lot of room for improvement! Your average for the three areas for 15 years olds is 474. Shanghai and Singapore are leading with 588 and 555, respectively. Every 40 points is equivalent to one year of school. You do the math!
Households’ sense of well-being is of course not only influenced by income and wealth but also by other factors. At the OECD, we are assessing these additional dimensions through our Better Life Index, which has eleven components, including indicators of subjective well-being, health status, social connections, work-life balance, civic engagement and the quality of the environment.
The index provides very useful pointers as to why some countries fare well, and others not so well, across the different areas. For example, we know that Israelis live longer than the OECD average, but they tend to work longer hours, while the quality of air and water is poorer.
Developing in-depth policy responses to improve well-being requires further work – but Israel is up to the challenge! In this regard, we are very pleased that the Israeli government has been the first Member country to ask us to participate in a project, which, we hope, will see a set of well-being indicators submitted each year to Parliament in advance of the budget process. This will give well-being a much higher priority than is the case for most other OECD countries and, with this in mind, we look forward to contributing to this process by publishing How’s Life in Israel? in 2014.
In further evidence of how seriously you are taking these issues, the recently established ‘Committee for the War on Poverty’, established under the chairmanship of Elie Elalouf, is another step in the right direction. By adopting a ‘whole of society’ approach, bringing on board a range of stakeholders, you have an important opportunity to develop a coherent policy programme to tackle poverty that boasts broad ownership. We look forward to the committee’s recommendations and their timely implementation. As ever, the OECD stands ready to assist in policy analysis and design.
Getting the fiscal framework right
One of the most powerful policy levers at a government’s disposal is its power to tax and spend in pursuit of social and economic goals. Of course, governments must behave responsibly – and sound public finances are fundamental to a macroeconomic environment conducive to investment and growth. In this respect, Israel has reacted commendably to the fiscal speed bumps it has encountered.
Following a disappointing deficit in 2012, the government took the necessary corrective action. Fiscal consolidation is not easy on citizens, particularly when living standards are under pressure, but getting the public finances on track is definitely a goal worth pursuing. So long as growth remains relatively robust, the government should stick to its budget targets for 2014, and, if necessary, take further steps in 2015 and beyond.
If you need to raise further revenues, you should look first for opportunities to broaden the tax base and for further reducing tax avoidance and tax evasion. Other options are to prioritise environmental taxes, exploit tax bases that are immobile such as property, and prune tax expenditures. This will allow you to meet budgetary targets while doing the least damage to economic growth, social equality and environmental sustainability.
Of course, tax policy is not just about balancing the books, but also about financing the social programmes that can make a real difference in people’s lives and ensuring that workers and investors have the right incentives to work and invest.
Rapid introduction of the planned welfare to work programme, disability-benefit reform and encouraging greater take-up of the earned income tax credit will all help raise the living standards for ordinary Israelis.
Encouraging competition to drive inclusive growth
But before you raise taxes to finance social programmes, you need to have a strong economy underpinned by a dynamic and competitive private sector. Israel’s innovative, high-tech sector is a world-leader in many respects, and continues to be the beating heart of your strong economy. But that doesn’t mean that your private sector is living up to its full potential. You can do even better!
Healthy competition is at the root of the innovation and the productivity growth that will drive our economies forward. This is an area where Israel is lagging behind. Competition isn’t just good for growth and competitiveness. It can also drive inclusion, and spread the benefits of reform across society through greater choice and lower prices for consumers, more jobs for workers, and more opportunities for small businesses.
The retail and electricity sectors are in particular need of a shake-up. And because these are sectors that provide consumers with the bare essentials, they are also sectors through which increased competition could generate significant improvements in citizens’ welfare through better choice and lower prices.
Making sure that big business groups uphold the rights and interests of workers is of the utmost importance. With this in mind, we look forward to the approval and enactment of legislation aimed at improving the corporate governance of Israel’s influential business groups. Rigorous implementation and monitoring will be keys to the success in this endeavour, and thus to helping restore citizens’ trust in Israel’s private sector.
To paraphrase David Ben-Gurion, Israel founding father and first Prime Minister: “To maintain the status quo will not do.” More than ever, Israel needs a “dynamic State, bent upon creation and reform.” Inclusive growth is an achievable goal in a country that has already achieved so much so quickly.
Ladies and gentlemen:
With the right policies, narrower socio-economic divides and higher levels of well-being are well within Israel’s reach. Raising educational standards and encouraging employment, maintaining sound monetary policy and a responsible fiscal trajectory, pressing on with structural reforms that encourage innovation, competition and creativity – these are all central to achieving sustained, inclusive growth.
We look forward to continuing to work with the government and other stakeholders to tackle these challenges. We hope this Survey will allow Israel to design, promote and implement better policies for better lives.
Israel’s economy growing strongly but further efforts needed to improve living standards, says OECD