www.oecd.org/eco/surveys/economic-survey-israel.htm

2016 OECD ECONOMIC SURVEY OF ISRAEL

For a Strong and Inclusive Economy

Jerusalem, 31 January 2016

@OECD@OECDeconomy

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The context

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Growth has been strong

Source: OECD, Economic Outlook 98 database.

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Employment has also been strong

1. Of those aged 15 and more.Source: OECD, Economic Outlook 98 database.

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But productivity has been weak

Source: OECD, National Accounts and Productivity databases.

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Poverty is high

Source: OECD, Income Distribution database.

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Boosting competition and education to enhance productivity and living standards

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Sheltered sectors are inefficient

1. Total factor productivity.Source: G. Brand (2015), “The Evolvement of the College Wage Premium in the Israeli Labor Market Supply and Demand Factors” (in Hebrew), Milken Institute.

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Non-tariff barriers are high

1. Discrimination against foreign firms in taxes and subsidies, public procurement, entry regulation and appeal procedures.Source: OECD, Product Market Regulation database.

Fast-track implementation of Lang Committee recommendations: simplify import procedures and align them with those in force in other developed countries.

Remove the barriers to foreign service providers.

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And product market regulation is far from best practice

Source: OECD, Product Market Regulation database.

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The cost of living is high

Source : OECD, Price and Main Economic Indicators databases.

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Food prices are particularly high

Source : OECD, Price database.

Adopt the EU import procedures on food and agricultural products for both non-sensitive and sensitive products.

In agricultural policy, replace quotas, guaranteed prices and customs tariffs with direct payments to farmers.

Reduce concentration and regulation in the agri-food value chain.

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Concentration in the banking sector weakens competition and efficiency

1. Herfindahl-Hirschman Index (HHI). This is a measure of the size of firms in relation to the industry and an indicator of market competition. It can range from 0 to 1. Increases in the HHI indicate less competition. For this chart, the HHI calculation is based on total assets of the commercial banks.

2. For Israel, data is for December 2013. It is based on the total assets of the commercial banks and doesn't include activity of foreign banks.

3. Average of the countries shown.Source: Published financial statements for Israel and European Central Bank for all other countries.

Follow through on plans to allow the entry of new competitors in retail banking, in particular appropriately regulated non-banking credit entities.

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Several network industries are inefficient

Reform the electricity sector and the Israel Electricity Corporation, and create a separate infrastructure operator.

Improve transport regulation, especially in rail. Pursue state-owned enterprise reform and privatisation.

Source: OECD, Product Market Regulation database.

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Make government intervention more effective

Simplify environmental authorisation procedures. Implement the planned reduction of 25% of the regulatory burden using high-

quality regulatory impact assessments. Speed up rationalisation of public procurement procedures. Increase financial penalties for competition law violations.

Source: T. Kozluk (2014), “The Indicators of the Economic Burdens of Environmental Policy Design - Results from the OECD Questionnaire”, OECD Economics Department Working Papers, No. 1178, OECD Publishing; and OECD calculations.

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Haredi and Israeli-Arab students suffer from poor educational outcomes

1. Distribution of 12th-grade students by population group and matriculation status.Source: N. Blass (2014), “Trends in the Development of the Education System”, in State of the Nation Report 2014, Taub Center for Social Policy Studies in Israel.

Ensure that Haredi schools teach mathematics, science and foreign languages.

Further increase education funding for disadvantaged groups.

Develop vocational education and training.

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Reforms will create more well-paid jobs and will lower the cost of living

Moving to the OECD average regulation would raise per capita GDP by about 3¾% after 5 years and 5¾% after 10 years.

Increasing the share of high school graduates able to pursue higher education from 48% to 58% would raise per capita GDP by 3% in the long term.

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Policies to foster inclusive growth, including the welfare of retirees

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Despite progress, disadvantaged groups could be better integrated into the labour market

Expand the earned income tax credit and active labour market policies. Strengthen social connections between communities by introducing community

service for Israelis who are exempt from military service.

Source : Central Bureau of Statistics.

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On-going efforts to lower housing prices will improve well-being, especially for young families

Source: OECD, Housing Prices database.

Complete the streamlining of the administrative requirements for planning and building a home.

Further develop public transport infrastructure to make it easier to live in lower-price housing areas, and promote labour market participation for those living in remote areas.

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Poverty among the elderly is high

1. The poverty threshold is 50% of median disposable income. 2. Defined as aged over 65.Source: OECD, Income Distribution database.

During the transition to a mature second-pillar pension, ensure that first-pillar pensions provide adequate protection against elderly poverty.

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This risk of poverty is higher for older women

1. The poverty threshold is 50% of median disposable income. Source: OECD, Income Distribution database.

Gradually raise women’s statutory retirement age to equal men’s.

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Other reforms of the pension system

Index the retirement age to life expectancy at age 65.

Reduce management costs of pension funds, for instance, by requiring pension providers to offer passively managed (indexed) assets as the default option.

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Macroeconomic policies

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Inflation is below the official inflation objective

Source:OECD, Economic Outlook database.

Maintain the current expansionary monetary policy stance.

Be ready to implement further macro-prudential measures if risks to the financial system (for example, from housing prices) rise.

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Public debt has fallen, but the fiscal deficit is high

Source: Source: OECD, Economic Outlook database.

Further reduce the fiscal deficit.

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Spending cuts have squeezed key sectors

1. Or latest year available.Source: OECD, Economic Outlook database.; OECD (2015), Education at a Glance 2015.

Further increase spending on education, infrastructure and poverty reduction by making savings on military outlays and debt service, and by raising revenues.

Remove inefficient tax breaks, and raise environmental taxes.

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More Information…

www.oecd.org/eco/surveys/economic-survey-israel.htm

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Disclaimers: 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.This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area.