No matter who forms the next government following the fourth election in two years, there will be no shortage of economic challenges facing the 24th Knesset. The coronavirus pandemic has wreaked havoc on some sectors, while several underlying issues, once covered up and ignored, have risen to the forefront.
Here are some of the top things that Israel will need to address:
Unemployment: As Israel looks to heal from the damage of three crippling lockdowns, employment is the most pressing issue. The latest numbers from the Central Bureau of Statistics indicate that unemployment is still above 16%, with about 700,000 out of work.
The numbers are expected to improve slowly in the coming months, but it will be several years before Israel gets back to the record-low 3.8% unemployment rate it boasted at the end of 2019. The government recently offered “return to work” grants to incentivize those who were planning on enjoying their unemployment benefits through the end of June, but more measures will be needed.
The budget: The previous government fell when MKs couldn’t agree on a budget for 2020 and 2021. Finalizing a state budget that allocates state funds is fundamental to setting the nation’s upcoming priorities, and it should come before other emergency economic measures.
National debt: According to a report published last week by the Taub Center for Social Policy, Israel’s national debt increased to 72% of GDP in 2020, and it is expected to grow further. Bringing the deficit back to its mid-decade levels will leave lawmakers no choice but to raise taxes, Taub Center researchers concluded.
Upgrading the workforce: The pandemic exposed large gaps between the 12% or so of the population that works in the hi-tech sector and the remainder of the population, which is comprised in large part of low-skilled labor.
According to the State Comptroller’s Report released last week, some 69% of Israel’s workforce, or 2.7 million workers, will need to acquire new professional skills to remain relevant in the workforce in the coming years. However, current professional training programs are insufficient, and the government must work to encourage greater participation, the report said.
Housing starts: Demand for apartments in Israel is at record levels, as are home prices. However, while building more homes has been a national priority for several years, new housing starts declined by about 9% during the pandemic.
Until the Israel Lands Authority starts releasing land for building much more quickly than it has been, home prices will continue to rise further out of reach for most Israelis.
Law enforcement and bureaucracy: Israel has long been notorious for bureaucratic inefficiency, and while the country has made tremendous improvements in digitizing and streamlining processes, there is plenty more work to do.
Clamping down on Israel’s shadow economy would be a “game changer” to address the country’s budget issues, according to Prof. Dan Ben-David, president of the Shoresh Institution for Socioeconomic Research and an economist at Tel Aviv University.
“If we were to reduce our shadow economy to German or American levels, we would increase GDP by NIS 100 billion to NIS 200b. and increase tax income by NIS 40b. to NIS 60b.,” he said. “For comparison, the entire Health Ministry budget is about NIS 35b.”
Building infrastructure: Infrastructure projects are a classic part of the playbook to help bring a country out of recession, and Israel has gone all in with plans to update the country’s Internet, water and public transportation systems, among others. Those projects need to continue to gain momentum.