OECD economic report warns of 6% decline in GDP this year

Israel will need to tackle a number of issues head on to start its recovery process: poverty, tax policy, education and social cohesion.

Mahane Yehuda market reopens after coronavirus restrictions had it shut down for the most part (photo credit: MARC ISRAEL SELLEM)
Mahane Yehuda market reopens after coronavirus restrictions had it shut down for the most part
(photo credit: MARC ISRAEL SELLEM)
Israel’s economy is expected to experience “deep shock” that “will leave many looking for jobs,” the Organization for Economic Cooperation and Development (OECD) said in a report issued on Wednesday.
The 144-page document warned that there will be a need to tackle a number of issues head-on to start the recovery process: poverty, tax policy, education and social cohesion. If the economy returns to activity slowly after the second lockdown, and unless there is an unforeseen disaster, the OECD predicted a 6% decline in GDP this year and only 2.9% growth in 2021.
Finance Minister Israel Katz was presented with a copy of the report during an online meeting with OECD officials and he lauded the “clear statement by the organization that the correct approach, during these times, is to continue the economic policy [offering] support.”
Israel was already third highest among OECD countries in the number of working poor, under Mexico and Spain, according to a report in 2017 but the situation has now worsened, with roughly a million Israelis facing unemployment due to the COVID-19 pandemic, and the government decreeing two nationwide lockdowns in the space of six months.
OECD Secretary-General Jose Angel Gurria remarked that the report was presented as Israel marks a decade of its membership in the organization and said the Jewish state “studied well the best practices, and adopted the standards of excellence of other member states in the organization.”
Israel’s income inequality is among the highest in the OECD, the report also found, and poverty is not evenly distributed. Jerusalem is the poorest part of the country; Haifa is fourth, and Tel Aviv is near last.
Tel Aviv leads in jobs, income and life satisfaction but Jerusalem leads in safety and a strong sense of community.
The report also showed that a third of those who were laid off since June were low-skilled workers, and called on Israel to improve the educational options offered to the ultra-Orthodox (haredi) and Arab-Israeli communities.
However, it also showed that only 8% of haredim view themselves as poor and that over 90% in that sector donate to charity.
It also noted that since 2018, Israeli students select engineering as their top choice, and that the number of high school students learning English and math doubled, compared to 2012.
“Israel would benefit from more efforts to improve social cohesion,” the report argued.
Not only do the haredi and Arab communities present unique challenges, other groups also present uneasy choices, the report suggested.
It said the state had a “two-speed” economy: hi-tech and everything else. There is a tax policy that offers “preferential treatment” to the start-up sector – which on its own, comprises around 50% of all exported Israeli services.
The report proposed a more even-handed taxation policy and said the country’s property tax system was “opaque.”
The report praised the 2017 “Net Family” program of former finance minister Moshe Kahlon as a good social policy.
The detailed document, touched on some other aspects of Israeli life, too, and noted that it is one of the few countries that has not pushed the retirement age for women past 62.
Israelis pay more for food than shoppers in other OECD countries because it places high barriers on foreign trade. The report called for lowering the tariff on imported agricultural goods.
Just before Rosh Hashanah, Finance Minister Israel Katz said he would allow various vegetables to be imported tax-free to ensure Israelis are not overcharged for their tomatoes and cucumbers. But this is was an ad-hoc solution to a persistent problem. Israel, which boasts dairy cows with the highest yield in the world, recently faced a months-long shortage of butter, until importers were allowed to bring more in.
The complex question of how to protect domestic interests, such as farming, while also ensuring that consumers can pay reasonable prices and can be offered a wide selection of goods, isn’t answered in the report.
Strikingly, Israel was ranked very low (29 out of 36 countries) regarding use of the internet to communicate with public authorities. The leading country is Denmark and the bottom  country is Colombia. The OECD average rank is 14.