How can Israel solve the high cost of living crisis?

The Manufacturers Association of Israel published a ten-part plan to fight the high cost of living in Israel.

 Israelis protest against the soaring housing prices in Tel Aviv and cost of living, on July 2, 2022. (photo credit: TOMER NEUBERG/FLASH90)
Israelis protest against the soaring housing prices in Tel Aviv and cost of living, on July 2, 2022.
(photo credit: TOMER NEUBERG/FLASH90)

The president of the MAI said that the minimum wage formula must be changed and strikes in essential services must be forbidden.  

The MAI's plan has ten fundamental steps to change the face of the economy and address the very high cost of living. The details of the plan were recently published in Maariv.

Cost of living and housing prices

The first two sections of the plan concern the cost of living and the issue of housing prices. The plan includes increasing the supply of land and dramatically cutting bureaucracy and licensing procedures in order to shorten permit times. Local authorities that pledge to promote housing and employment opportunities will be given positive incentives.

Reduce VAT

 DEMONSTRATORS SET UP tents across from the Knesset, to protest soaring housing prices, earlier this year. One of the signs reads: ‘We all deserve a home.’ (credit: YONATAN SINDEL/FLASH90) DEMONSTRATORS SET UP tents across from the Knesset, to protest soaring housing prices, earlier this year. One of the signs reads: ‘We all deserve a home.’ (credit: YONATAN SINDEL/FLASH90)

Maintaining the supply chains of raw materials for the construction industry and preventing delays at the ports will be guaranteed, as well. The second recommendation is to reduce the VAT on basic products and especially food by half, as is customary in OECD countries, and fix it at 8%.

From minimum wage to minimum income

Increasing competition in the economy will be done by encouraging the growth of small and medium-sized local companies in order to maintain and expand employment. The MAI also proposed to switch from the "minimum wage" method to the "minimum income" method, according to which only those who earn a wage up to 33% above the minimum wage will benefit from the wage update mechanism. 

Dr. Ron Tomer, MAI president, said that this will help those who earn way below the minimum wage and not all those who earn close to the minimum.

Median wage instead of average wage

Also in the plan is the changing of the linkage mechanism to the average wage in the economy and creating a mechanism that depends on the median wage, instead of the average wage that is affected by the volatility in hi-tech. Another section is the creation of a law prohibiting strikes in essential services.

Reduction of various taxes

Another section refers to the reduction of production costs and taxes such as water costs, property tax and regulation for businesses to make it easier for businesses which will lead to a reduction in product prices for consumers.

Agricultural subsify

Regarding agriculture, MAI members want to compare the subsidy to farmers with the accepted one by increasing the direct subsidy and ending all subsidies for agricultural products through the price of the product.

Removing regulatory barriers

As expected, the MAI also advocated for the removal of regulatory barriers and the transfer of reporting responsibilities to the authorities relevant to each business instead of waiting endlessly for permits.

They also indicated in the plan an investment in tech that will increase labor productivity and the application of accelerated depreciation by the year 2023.