OECD Sec-Gen: Israel’s economy strong, but social cohesion a problem

New report attributes growth to booming high-tech, natural gas; Arab and ultra-Orthodox exclusion a central problem.

Netanyahu meeting with OECD Sec-Gen Anjel Gurria 370 (photo credit: Haim Tzah/GPO)
Netanyahu meeting with OECD Sec-Gen Anjel Gurria 370
(photo credit: Haim Tzah/GPO)
OECD Secretary-General Angel Gurría congratulated Israel for its superior economic growth but noted inequality and a lack of social cohesion.
“Given the state of affairs in the world, Israel is looking steady, strong and I think moving in the right direction,” Gurría said Sunday, as he presented the Organization for Economic Cooperation and Development’s 2013 Economic Survey on Israel to the government.
With GDP growth rates projected near 3.7 percent for 2013 and only a slight decline expected in 2014, Israel was growing faster than the world average of 2.7% and at about three times the rate of the OECD average of 1.2%.
New Finance Ministry figures released on Sunday, however, put growth somewhat lower, estimating it at 3.6% for 2013 and projected it to be 3.1% for 2014.
Many OECD countries are “still exhibiting and suffering the effects of the crisis. Unemployment is still growing in the Euro zone, at around 12%.”
In Israel it has dropped below 6%.
Gurría picked out Israel’s booming hi-tech sector and its natural gas finds as major drivers of the economy, noting that the latter accounted for one percentage point of its economic growth.
The natural gas, in other words, could account for the entire difference between Israel’s GDP growth and the world average.
Yet not everyone was able to partake in Israel’s positive economic progress. The report cited the high levels of poverty, with more than 20% of the population living under the poverty line.
“I think the question is how to broadly translate these good results, these good numbers, into a broadbased improvement in living standards across the population,” he said.
According the OECD report, “the middle-class concerns that surfaced in the 2011 ‘tent protests’ remain prominent, notably the housing costs, high retail prices and associated dissatisfaction with the degree of competition in the economy, the role of large familyrun business groups and the distribution of the tax burden.”
To stay ahead, Israel would have to implement structural reforms, make the labor market more flexible, reduce bureaucracy and ensure that ballooning real estate prices were not a housing bubble.
Gurría suggested that Israel do away with the VAT exemption in Eilat and on fruits and vegetables, and raise the retirement age for women, which is currently at 62.
Prime Minister Binyamin Netanyahu, who met with Gurria in the morning, welcomed the report but acknowledged the challenges it highlighted.
“On closing the gaps, I would say that there will be more people who will participate and benefit from growth. This is the main thing I would say that we need to do, but we must ensure that there will be benefits,” he said. “Creating growth is the critical thing that we are committed to.”
Finance Minister Yair Lapid noted that as an export-oriented economy, Israel was vulnerable to world events.
In a speech to the Globes Israel Business conference, Lapid spoke of the importance of moving the peace process forward in that context.
“The latest OECD report, presented just this morning to the government, cites Israel’s hi-tech industry as the main engine of our economic growth, but our enemies also know that this makes our economy particularly vulnerable in the face of all kinds of international boycotts and sanctions,” he said.
Turning to fiscal issues, Gurría noted that Israel has increased public expenditure less than most OECD countries, but noted that the condition a few years down the road remained a challenge.
The Bank of Israel on Sunday said that the newly approved cancellation of a NIS 3.3 billion income tax increase, which had been planned for January, would require the government to raise other taxes or cut spending to the tune of 1% of GDP in 2015, and over 2% cumulatively by 2017.
New Finance Ministry projections put the 2013 deficit at 3%, well below the 4.3% target.