Economy minister: Teva should earn its tax breaks

Teva has received some NIS 22 billion in tax breaks and grants over the past decade, without any conditions regarding layoffs in return.

Some 1,780 Jerusalemites are employed at the city’s two branches of Teva (photo credit: MARC ISRAEL SELLEM)
Some 1,780 Jerusalemites are employed at the city’s two branches of Teva
(photo credit: MARC ISRAEL SELLEM)
Even though workers barricade themselves in factories, ignite trash cans and picket the Prime Minister’s Residence, Economy Minister Eli Cohen says the Teva layoffs should not be over-hyped.
“In Israel, when you will fire 1,750 workers, it’s not something dramatic,” he said, commenting on last week’s announcement by the pharmaceutical giant to let go of one in four of its Israeli employees. “We have 3.9 million people in the workforce. We have companies that are much bigger than Teva today in terms of number of employees. But Teva is a symbol for us. I’m sure that nobody will call [Teva CEO Kare] Schultz in the US when they close 14 to 15 factories there, in Ireland, in other countries in Europe.”
Given that Teva has received some NIS 22 billion in tax breaks and grants over the past decade, without any conditions regarding layoffs in return, Cohen said the government learned its lesson and now requires companies that receive grants to pledge not to fire workers for a few years.
“Was it a mistake? I’m telling you, ‘Yes,’” he said. “I think what they received in the early 2000s, that they had zero taxes without commitments, it was not a wise [arrangement].”
Sitting down with The Jerusalem Post at the Economy Ministry in Jerusalem for a year-in-review interview on Tuesday, Cohen touted how Israel enjoys annual GDP growth of more than 3%, far higher than the OECD average. That puts Israel on track to have the 15th-highest worldwide GDP per capita in a few years, he said.
Economy Minister Eli Cohen (Courtesy)Economy Minister Eli Cohen (Courtesy)
Much of the economic growth is due to Israel spending more on public R&D as a share of its domestic resources than any other developed country, Cohen said, and Israel is currently enjoying its lowest unemployment rate in more than 30 years, at 4.1%. It also enjoys a relatively low public debt-to-GDP ratio of around 60%, far lower than the US’s 106%. Yet the hands-off, business-friendly policies have come at a cost: steadily increasing income inequality, among the worst in the developed world.
Israel has seen more than 300 multinational corporations set up shop here, with Amazon announcing in November that it would be coming, while and Alibaba recently opened offices.
“Today, if you’re a young guy, you do not need to go to Silicon Valley,” Cohen said. “You can find all the relevant companies here in Israel... And if you take the number of start-ups per capita, then [Israel] is the highest. With the number of start-ups in Israel, it’s larger than in most of Europe.”
Amid the clamor for multinational corporations to set up shop in Israel, the government may be giving them more benefits than fledgling start-ups, he said. Amazon can reportedly afford to offer NIS 92,000 ($26,000) monthly salaries for highly skilled engineers, which Israeli start-ups, trying to become the next Waze, cannot match. That comes as the Israel Innovation Authority projects a shortage of 10,000 programmers and software engineers in the next decade.
“Israel is a free market,” Cohen said. “We will not put limitations on multinational corporations. And sometimes, you know, when you try to develop a start-up, I believe money is not the most important thing for you. Sometimes you have a dream – it’s a different type of work.”
And while the government is encouraging more chain stores, such as France’s Decathlon, H&M and American Eagle, to open outlets, that could harm small shopkeepers.
“We are willing to see more international chains operate in Israel,” he said. “We believe in an open market, in a competitive market. Therefore, [our small businesses] will need to be more competitive.”
Cohen, formerly an accountant from Holon, perks up when talking about taxes, numbers and stocks. A generation ago, the largest corporations by market valuation worldwide were in the oil and gas industry. (In terms of revenue, that still holds true.) Today, only one of the 10 largest companies by market valuation deals with fossil fuels, Exxon Mobil. The rest are tech firms, such as Google, Facebook, Microsoft and Apple, or banks.
“In the new world, which is mainly a technological one, Israel is a key player,” Cohen said. “We believe the next three decades will be mainly [focused on] technology. Therefore, we see our position not just in the economic world but also in the overall [geopolitical] world is much better. I just met with President Xi Jinping in China. They understand that Israel can contribute to the world.”
Ticking off a laundry list of Israeli accomplishments, including Intel buying Jerusalem-based Mobileye for $15.2 billion last year and Gilead acquiring Kite Pharma for $11.9b. in August, he said the innovation here is life-saving. In fact, Mobileye is even expanding its operations in Israel, unlike after many start-up “exits,” when their operations are transferred internationally. Cohen said Israel is “changing from the ‘Start-Up Nation’ to the nation of innovation, making it necessary for multinational corporations that acquire Israeli start-ups to stay and remain in Israel.
Mobileye’s autonomous-driving development could reduce car accidents from between 10%-70%, he said, and Kite Pharma is trying to procure cures for cancer, showing how Israel contributes to lengthening life expectancy.
“You know, we used to say as a blessing, I hope you live up to 120,” Cohen said. “Now it’s up to 140. We believe that we’ll contribute, so 20 years from now, living up to 120 won’t be a compliment anymore. We have the best pharmaceutical products, cybersecurity, fin-tech, agri-tech, water technology. We believe that we have the best in the world.”
Emphasizing how Israel helps the world with innovation, he defended government policy in what Israelis label Judea and Samaria and what the world calls the West Bank.
“The UN commissioner for human rights is willing to publish a blacklist for the companies that operate in Judea and Samaria, and this is hypocrisy,” Cohen said. “Today, I will say that in our industrial zones, 50% of our workers are Palestinian... If they will succeed with a blacklist, the ones who will pay the price will be [the world].”
Regarding the cost of living, Cohen said the government was trying to crack down on monopolies among importers and distributors. Given Israel’s testy relations with neighboring countries, almost all consumer products have to be imported from overseas. That drives up the cost of daily toiletries.
“Israel is an island... Unfortunately, we don’t have trade with our neighbors, although with part of them we have peace,” he said.
“Some global brands take advantage of the current circumstances and price Israel much higher, for example, for toiletries, toothbrushes, razors.”
To reduce the cost of living, Cohen is pushing to allow parallel imports as a way to break the cartels. The Economy Ministry also wants to streamline regulations so that Israel accepts European and American consumer-safety standards without demanding further local checks that could allow local companies to lobby for cumbersome protections.
While Israel’s tax regime has helped encourage international investment, it may not continue. The country offers a relatively low corporate tax rate of 23%, along with a 6% tax on intellectual property, a 7.5% corporate rate for companies based in Israel’s periphery and a special 7.5% rate for exporters. Yet, with the US adopting a 21% corporate tax rate, that will reduce incentives for American investors to come here.
Cohen promised to respond in tandem to the US legislative proposal, but that remains to be seen in 2018.