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Economic Survey of Israel 2009: Executive summary

 

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The following is the Executive summary of the OECD assessment and recommendations, taken from 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

Effective macroeconomic stabilisation policies along with market-oriented structural reforms have helped support a high average rate of growth. Also, the economy has weathered the recent global downturn well, and the policy responses have been generally appropriate. However:

  • The Bank of Israel should cease heavy exchange-rate intervention to avoid damaging its credibility.
  • As elsewhere, the authorities need to reflect on financial regulation; one useful change would be to transfer the Ministry of Finance’s supervisory roles to a more independent body.

Levels of public debt and expenditure have been brought well within the range of OECD countries’ outcomes. But slimmer government also means sharper trade offs between reducing debt, accommodating legitimate spending demands and cutting taxes. Long-term fiscal sustainability needs to be reinforced.

  • Caution in pursuing further corporate and personal income tax cuts, making the temporary increase in the VAT rate permanent, and the elimination of low-priority tax expenditures would all be helpful.
  • The budget expenditure rule should be replaced by one anchored in a long-term debt goal, and measures should be implemented to make budgeting processes more transparent.

Secondary and tertiary attainment in the working-age population is impressive as a whole, but weak outcomes in the Arab and Ultra-orthodox communities are contributing to low employment rates and poverty. Also, international test scores indicate a more widespread problem of weak core skills.

  • Reforms underway in state primary and secondary education (particularly the New Horizon programme) are welcome, and a similar package should be negotiated for upper-secondary schools.
  • More strenuous efforts are required to level the educational playing field for Arab-Israelis.
  • More vocationally oriented learning needs to be encouraged in the Ultra-orthodox community.
  • Another attempt should be made to boost state tertiary-education funding while raising tuition fees and strengthening the student loan system.

The welcome "welfare to work" approach in social policy will help to enhance work incentives, thereby achieving a sustainable reduction in poverty levels. It should be developed further and be accompanied by other measures that more strongly focus labour-market and social policies on low-income households:

  • The Light for Employment programme and the earned-income tax credit (EITC) should be rolled out on a nationwide basis, though in both cases close monitoring must continue.
  • The EITC should be raised along with an increase in the level and coverage of Income Support benefit. Savings on the universal child allowance should be considered.
  • Labour-market regulation should be more uniformly enforced, particularly the minimum wage. At the same time its value relative to the average wage should be reduced progressively over time.

Despite much progress, there is plenty of scope to improve the business environment:

  • OECD indicators suggest firms are overly hampered by regulation, calling for review.
  • Support for investment, R&D and SMEs is complex and demands regular and rigorous programme assessment. Agricultural support should be pared back.
  • General competition legislation and enforcement is suitable, but network-industry reform is lagging in some sectors, notably in the production and distribution of electricity.
  • Strained road and rail infrastructure 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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