State Comptroller Netanyahu Engelman declared today that the highly anticipated report addressing the cost of living in Israel has been finalized and is set to be disclosed before the upcoming holiday season.
The extensive five-chapter report delves into various facets of the cost of living, encompassing topics such as price monitoring in the food sector, the impact of seaports on living costs, readiness for inflationary episodes, oversight of credit authorities, and scrutiny of the Capital Market Authority.
In an official statement, Engelman remarked, "In addition to initiating reviews on matters related to the war, I have decided to publish reports on the issue of the cost of living, with work on them concluding before October 7th, and their release planned after the Tishrei holidays."
The cost of living in Israel has been a lingering concern, exacerbated by the recent "Iron Swords" conflict, and the year 2024 commenced with further economic challenges. The economic fallout from the war, coupled with high-interest rates, has significantly impacted households across the country, affecting not only the lives of reservists who risked their lives for the nation but also those displaced from the southern and northern regions.
As the government formulates the 2024 budget, it must evaluate the war's impact on living costs and address the deficiencies highlighted in the report.
Lack of preparedness for inflation
The State Comptroller's report delves into the lack of preparedness for inflation and the absence of a fiscal plan by the Ministry of Finance when inflation surpassed the government's target (1%-3%), reaching 5.3% in 2022.
The report criticizes the partial response to the surge in interest rates paid by banks on public deposits, contributing significantly to bank profits. High inflation in 2022 led to economic challenges, impacting public purchasing power.
Various deficiencies were identified, including the absence of a contingency plan at the Finance Ministry, outdated analysis of the state's income sensitivity, and insufficient information in the Accountant General's Office regarding government contracts linked to the consumer price index. In an international comparison, the report highlights that other surveyed countries implemented three types of fiscal policy measures during inflation surges, whereas Israel focused only on reducing energy and fuel costs.
The report calls for the Finance Ministry to adapt to changing inflationary conditions, take measures to mitigate inflationary pressures, support affected populations, and ensure the banking system does not disproportionately benefit from rising interest rates.
Food prices scrutinized
The State Comptroller's report on food price supervision in Israel sheds light on various issues. Food prices in Israel are 51% higher compared to European Union countries and 37% higher than the OECD average.
Bread prices are particularly steep, with an 82% higher cost than in the United States, England, New Zealand, and Spain. Concentration issues in various food market segments and significant price gaps compared to developed countries were noted.
While the report identifies market concentration issues, it also notes a decrease in enforcement cases related to price violations, criticizing the lack of effectiveness in enforcement and raising concerns about monopolistic practices in the food sector.
The report underscores the need for price committees and regulators in the food sector to enhance market monitoring, pay attention to consumer preferences, and focus on essential products with positive health and nutritional benefits.
Credit problems persist
Despite the operational existence of the credit database since 2019, the report reveals its limited contribution to increasing competition in the household credit market.
Only a 2% change was observed in the rate of households opening a bank account in a new bank after the database's establishment.
Household debt to the financial sector reached 770 billion ILS by the end of 2022, reflecting a 49% growth compared to 2017. The report recommends actions to enhance the benefits derived from the credit database, contributing to increased competition and reduced credit costs in Israel.
Long-term savings dominated by institutional bodies
The audit exposes that eight institutional bodies collectively hold about 90% of the public's savings, amounting to approximately 2 trillion ILS. Concerns were raised about the significant dominance of these bodies the potential inefficiency in resource allocation, and broad financial risks in case of financial instability.
The audit also highlighted the relative identity in investment portfolios among these bodies, raising fears that they might act similarly in times of financial instability, deepening the implications of such a situation.
The auditor recommends that the Finance Ministry establish a follow-up committee to examine the substantial dominance of institutional bodies in Israeli companies and the relative identity in the investment portfolios of these bodies, aligning with the recommendations of the concentration team. This examination is crucial as it involves the long-term savings of the Israeli public, managed with increasing financial volume by institutional bodies.
Port efficiency criticized
The State Comptroller's report accentuates operational inefficiencies and subpar service levels at Israeli ports, specifically Ashdod. Criticism revolves around the low service standards in comparison to global benchmarks, resulting in adverse economic effects and an escalation in the cost of living.
The report underscores the significant annual damages inflicted by port congestion in 2021, estimated at 5.1 billion shekels for exports and 3.8 billion shekels for imported consumer goods. Issues with delays in loading and unloading, reduced workforce responsiveness, and inadequate infrastructure were also identified.
Furthermore, concerns were raised regarding the handling of nuclear cargo, emphasizing the need to enhance efficiency and reduce vessel waiting times in Israeli ports. The Comptroller recommends measures to improve cargo handling efficiency and reduce ship waiting times.
Government commitment essential
As the public awaits the government's response to the State Comptroller's report, there is a growing consensus that swift and decisive action is essential.
The economic challenges highlighted in the report, coupled with the ongoing impact of the "Swords of Iron" conflict, require a comprehensive and coordinated effort from government agencies to stabilize the economy, protect consumers, and pave the way for sustainable growth.
The upcoming policy decisions will play a crucial role in shaping the trajectory of Israel's economic landscape in the months and years to come.