The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.
Economic Policy Reforms 2019
Going for Growth
Economic Policy Reforms
Israel
The improvement in employment performance and labour utilisation has continued, albeit at a slower pace. The gap in per capita GDP with respect to the upper half of OECD countries did not decline in the last decade due to weak productivity growth.
Inequalities have edged down since 2007, thanks to higher employment rates among Israeli-Arabs and the Haredim, but poverty remains widespread among these disadvantaged groups. Greenhouse gas emissions have declined, but population exposure to air pollution is increasing as air quality is well below the OECD average.
Product market competition has progressed with increased openness to parallel imports and cuts in customs duties, further reduction of entry barriers in the banking sector and the launch of an electricity market reform. The access to earned income tax credits has been widened to foster employment and lower poverty for working couples. Steps have been taken to strengthen investment, planning and monitoring of public transport infrastructure.
Enhancing skills of and employment opportunities for disadvantaged groups, better transport infrastructure and further product market reforms and boosting productivity are crucial for making growth stronger and more inclusive.
Growth performance, inequality and environment indicators: Israel
Source: Panel A: OECD, Economic Outlook Database; Panel B: OECD, Income Distribution and National Accounts Databases; United Nations Framework Convention on Climate Change (UNFCCC) Database and International Energy Agency (IEA), Energy Database; Panel C: OECD, National Accounts and Productivity Databases.
Policy indicators: Israel
Source: Panel A: PISA Database; Panel B: OECD, Public expenditure and participant stocks on LMP and Economic Outlook Databases.
Beyond GDP per capita: Israel
Source: Panel A: OECD, Income Distribution Database, World Bank, World Development Indicators Database and China National Bureau of Statistics; Panel B: OECD, Environment Database.
Note: For the explanation of the sets of indicators above, please go to the metadata annex at the end of this chapter.
Israel: Going for Growth 2019 priorities
Improve education outcomes for disadvantaged groups. Student outcomes differ markedly between communities, which contribute to high social and economic segregation.
Actions taken: Since 2016/2017 school year, the number of hours dedicated to teaching Hebrew has been expanded from four to five hours a week for Arab students in grade 3-9. In a pilot project Hebrew language will be taught in some 120 Arab kindergartens for 2 hours a week.
Recommendations: Further expand Hebrew courses in Arab schools. Make funding to the Haredi stream conditional on an increase in core subjects in the curriculum with closer monitoring and testing. Develop work-based learning in the initial vocational and training programmes in coordination with industry partners to enhance their quality.
Lower trade protection and reduce regulatory burdens. Foreign trade openness and competition remain weak and businesses suffer from excessive bureaucracy.
Actions taken: In 2018 exposure to parallel imports via the Internet has been increased and import tariffs reduced on several products, including foodstuffs. The bureaucratic cost of phytosanitary and veterinary controls of imports has also been cut.
Recommendations: Further reduce import barriers replacing them with more post-market surveillance of imported goods and wider use of “trusted traders” systems and targeted controls. Introduce a “silence-is-consent” rule, where appropriate, to lower administrative burdens and promote online procedures for business licensing and paying taxes.
Further enhance product market competition. Competition remains weak in many services sectors and the entire food chain, contributing to the high cost of living.
Actions taken: In June 2018 the government approved the dismantling of the Israel Electricity Company's monopoly and privatisation of about 40% of its production capacity. Banking competition has been strengthened by the separation of credit card firms from the two main banks in 2018 and the creation of a central credit register accessible to all banks.
Recommendations: Replace agricultural quotas and tariffs with direct transfers to farmers. Further cut non-tariff barriers on staples by extending the use of EU health rules for “non-sensitive” products to “sensitive” products such as dairy, eggs and meat, which represent half of all imported foodstuffs. Improve transparency and efficiency of the implementation of the religious dietary code of kashrut.
Strengthen active labour market policies to boost employment integration. Resources for public employment services and active labour market policies, especially training, are low.
Actions taken: The 2019 budget increased the earned income tax credit for men to the level of women, with stronger incentives for labour market participation of both spouses.
Recommendations: Strengthen the assessment of existing training programmes and expand their use, focusing on low-skilled workers, including individuals already in work, especially from disadvantaged groups who are less likely to receive training.
Develop public transport. Partly due to past underinvestment, Israel has a large infrastructure deficit in public transport, which causes considerable road congestion and poor air quality.
Actions taken: In the last two years over 50% of government investment in transport has concerned public transport. A high-speed train will open shortly between Jerusalem and Tel Aviv. Light rail systems will be built in the three main Israeli cities by 2023, with an inter-ministerial committee created in mid-2017 to improve infrastructure planning and monitoring.
Recommendations: Promote road tolls to foster user funding for infrastructure. Shift car taxes substantially from ownership to vehicle use to reduce pollution. Introduce systematic publication of cost-benefit analyses of projects, with mandatory justification of policy-makers’ choices.