8/12/13-Israel’s economy is in good shape, but further efforts are needed to fight poverty and close the gap in living standards with other leading nations, according to the OECD’s latest Economic Survey of Israel.
The Survey, presented by OECD Secretary-General Angel Gurría to Prime Minister Benyamin Netanyahu during a cabinet meeting, underscores the importance of maintaining prudent macroeconomic frameworks and building momentum behind structural reforms, particularly in education, social and competition policies. It also calls on Israel to ensure that environmental externalities are more fully incorporated into government, household and business decisions.
“With strong growth projected for the coming two years and unemployment at historically low levels, the near-term outlook for the Israeli economy is very auspicious,” OECD Secretary-General Angel Gurría said. “To increase well-being and reduce socio-economic gaps, all citizens must have access to good education and opportunities to develop skills. Making work pay is the way forward,” Mr Gurria said (Read the full speech).
The Survey urges continued vigilance of Israel’s housing market and points out the need to monitor and respond to financial market risks. When global financial conditions normalise and capital flows stabilise, the authorities should plan to tighten monetary policy, as necessary, while terminating intervention in the foreign‑currency market.
On the fiscal front, the OECD warns that measures may be required to raise revenue, particularly beyond 2014, to meet previously announced budgetary targets. Introduction of a stronger medium-term perspective in budgeting would improve spending efficiency.
The Survey encourages further measures to strengthen competition in retail supply chains and reform the electricity sector, and warns against the provision of implicit fuel subsidies in the gas sector.
To strengthen Israel’s tax and transfer system, tax evasion and avoidance need to be avoided and tax bases need to be broadened. Should the need arise to boost revenue, the rates of VAT, rather than personal or corporate income tax, could be raised.
Expansion of the earned-income tax credit would help reduce in-work poverty, but the reduction in the value of child allowance can have adverse effects on low-income households. Environmental taxation in the transport sector should focus on raising taxes that influence car use, rather than ownership.
Population aging and the imminent retirement of many physicians and nurses are putting further strains on the health care system. The Survey underscores a need to ensure adequate public resources, strong competition between the health funds, continued expansion of medical schools and nurse training and greater focus on poor households’ health to ensure that public care, with quality services and equal access for all, remains at the core of the system.