Kahlon aims for structural reforms in two-year economic plan

The plan follows months of tense negotiations between the Finance Ministry and Bank of Israel

By
July 31, 2016 20:01
2 minute read.
Moshe Kahlon

Moshe Kahlon. (photo credit: MARC ISRAEL SELLEM/THE JERUSALEM POST)

 
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Finance Minister Moshe Kahlon on Sunday released the proposed economic plan for 2017-2018, including several reforms aimed at addressing issues such as market concentration, cost of living, productivity and the housing crisis.

“In the plan, you will find bold structural reforms that will take care of the economy’s structural failures in Israel,” the plan’s introduction stated.

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In a time of constrained monetary policy, it continued, the upcoming budget was “an opportunity for all of us to fulfill the promise to the Israeli public for a better future, through a focus on the welfare of the individual, a more equitable and efficient allocation of resources, which advances the social values of Israel in all its forms.”

Kahlon opened the document to a one-week period of public comment.

The plan includes steps to reduce market concentration and the cost of living; create equal employment opportunities; improve the country’s productivity; and address the housing crisis.

To tackle the cost of living, for example, the plan proposed structural changes to the standards institute, which sometimes creates barriers that make it tougher to import products. One oft-cited example is milk alternatives such as soy, which are not allowed to be called milk and must be relabeled.

To battle inequality, it proposes creating differential local property taxes and paying the difference through a government fund; a plan to rehabilitate criminals; and ways to help independent workers save money.

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The program also lays out multi-year investments in transportation, including light rails in Tel Aviv and Jerusalem (as well as tracks between Haifa and Nazareth); steps to make Israel’s economy more attractive to foreign investment; and a plan to push Israel’s fuel needs toward natural gas.

In housing, the program focuses on bringing down costs and regulation at the local level and funneling financial resources toward boosting supply.

The plan, to be passed alongside the upcoming budget, was released the same day the cabinet advanced a reform to reduce concentration in the banking system based on the recommendations of the Strum commission. The plan would separate two credit-card companies from Israel’s biggest banks, and lower the barriers for new banks to form.

Bank of Israel Governor Karnit Flug threw her support behind the plan, which follows months of tense negotiations between the Finance Ministry and Bank of Israel, in a briefing with the cabinet, but said some aspects of the reform still needed to be adjusted to ensure it does not create instability in Israel’s financial system. The addition of new banks, small banks and more financial intermediaries, she said, needs to be carefully monitored and regulated.

Political changes to the country’s economic management also were announced Sunday, as a cabinet shuffle delivered the economy portfolio to Kahlon.

Prime Minister Benjamin Netanyahu has served as acting economy minister since Arye Deri left the role in November to pave the way for a controversial natural gas regulatory scheme.

Kahlon will keep the finance portfolio, and take responsibility for a reduced portion of the Economy Ministry’s responsibility, which does not include employment issues.

Kahlon’s Kulanu party gave up the Environmental Protection Ministry, which will be led by Likud’s Ze’ev Elkin.

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