The Organization for Economic Cooperation and Development (OECD) handed
its biannual, country-specific report on Israel to Finance Minister
Yuval Steinitz and Bank of Israel Governor Stanley Fischer on Monday.
report, which focuses on economic challenges specific to Israel,
included assessments and recommendations on the Trajtenberg report -
which received praise - new fiscal rules, the Sheshinski commission on natural resources, housing, and environmental issues.
OECD: Rich earn 14 times more than poor in Israel
OECD slashes growth forecasts; PM: Cut spending
The report noted that although Israel emerged from the 2008-2009 global
crisis relatively unscathed, worsening global economic developments,
high geopolitical tensions and the social protests
that added a new dimension to the socio-economic agenda will have an
influence on the economy.
the report lauded the Sheshninski commission's reform of taxing
natural gas and oil and noted that it will almost double the share of the state's gas profits, bringing it close to the OECD country average of
Recommendation on taxation from the Trajtenberg committee were given
positive reviews as well, and the reported noted that the Israeli market needs to be demonopolized. The report discouraged Israel from
significantly raising taxes on high-income earners beyond the
Trajtenberg committee's recommendations. Further increases, it argued,
could encourage tax evasion
while only slightly increasing revenues.
In the field of employment, Israel's unemployment rate reached a
low-point of 5.5% in the second quarter of 2011, while participation in
the labor market increased.
Contrary to conventional wisdom, the report said, raising the Value
Added Tax (VAT) would be the least potentially damaging method of raising
government income. Israel's 16% VAT rate is significantly lower than in
OECD countries, and the government should go beyond the Trajtenberg
recommendations - which prevented VAT from falling to 15.5% - and
actually raise the tax.
The report's also stated that the government's new fiscal rule will increase the level of expenditure
relative to its predecessors. However, the 2012 budget should not be
reopened and significant deviations from already-announced spending
should be opposed.
welcomed the report, saying its findings reinforced the government's
economic principals. "The biannual OECD report supports the policy
principals the government has followed in recent years. We will continue
responsibly to maintain the budgetary frameworks."
Fischer added that Israel will "examine the important issues it raises and discuss its recommendations
and their possible implementation."