Israel's state budget: What are the main reforms?

The budget includes dozens of new initiatives and reforms in imports, kashrut, bureaucracy, transportation infrastructure, retirement age for women and banking, among others.

THE KNESSET building in Jerusalem holds one of the world’s smallest legislatures. (photo credit: MARC ISRAEL SELLEM/THE JERUSALEM POST)
THE KNESSET building in Jerusalem holds one of the world’s smallest legislatures.

With the approval on Thursday of the state budget and Economic Arrangements Law (EAL), Israel embarks on a wide range of economic reforms that will affect almost every part of society.

Described by Finance Minister Avigdor Liberman as Israel’s most social budget ever, it includes dozens of new initiatives and reforms in imports, kashrut, bureaucracy, transportation infrastructure, retirement age for women and banking, among others.

“These reforms express the vision that underlies the entire economic plan of the State of Israel, for without a vision, a nation loses restraint,” Liberman said, quoting the Book of Proverbs, following the approval of the EAL.

Among the reforms that will go into effect are:

Imports: The reform will reduce the regulatory and bureaucratic burden placed on importers in order to reduce the cost of living.

Illustrative photo of Israeli money (credit: MARC ISRAEL SELLEM)Illustrative photo of Israeli money (credit: MARC ISRAEL SELLEM)

Under the new legislation, products that have been authorized for use in developed countries will no longer have to be inspected again by Israeli standards authorities, allowing tens of thousands of food and consumer items to be available at lower prices. This reform is expected to save the public about NIS 8 billion a year, the Finance Ministry said, although it remains to be seen how and whether importers will pass those savings on to consumers.

Kashrut: Currently, the kashrut system is a monopoly controlled by the Chief Rabbinate. The reform proposes opening up the kosher certification market to competition so that private organizations can also authorize kashrut. This is expected to reduce costs for businesses and manufacturers and raise the level of service for consumers.

Regulation: A long-term system will be created to reduce excessive regulatory burdens on businesses and to promote smart regulation through an authority that will oversee new procedures. The plan will encourage growth in the business sector that is predicted to translate to about NIS 75 billion over a decade, or a 6% growth in GDP per capita.

Retirement age for women: Israel’s retirement age for women, currently at 62, is one of the lowest in the world. The OECD average is 65.8. The retirement age will be raised to 65 gradually, over 11 years, with a significant budget allotted to help women nearing that age. The retirement age for men, 67, will remain the same.

Banking: The open banking reform, which will make the banking sector more transparent and enable Israelis to compare costs of different financial services, will come into effect as early as June 2022. The new law will require financial entities to be able to show clients what financial services they consume, how much they pay and how much they could save if they switch to another provider.

Transportation: The level of congestion on the roads in Israel costs the economy approximately NIS 40 billion per year due to loss of work and leisure hours, road accidents and pollution. A congestion charge for driving into the Tel Aviv metropolitan zone will help reduce traffic and raise about NIS 2.7 billion to be used toward financing more road upgrades and building fast lanes, the Finance Ministry said. New parking policies will also allow local authorities to adjust parking prices according to demand.

In addition, a massive NIS 150 billion plan to build a new metro train through the center is predicted to save the economy between NIS 26b.-NIS 34b. per year, the Finance Ministry said. Construction would begin around 2025 and may only be completed before 2032, disrupting traffic for years.

Housing: As part of the government’s multi-pronged plan to rein in soaring housing prices, some office space will be converted to apartments, dormitories and long-term rental housing, with the goal of adding thousands of short-term housing units to the market.

Another project will promote long-term rental projects by creating tax incentives to encourage investment in developing rental building projects. A licensing reform will also make it easier to get building permits. In addition, urban renewal plans like Tama 38 will be improved and promoted by local authorities, leading to an addition of about 4,500 projects per year.

Arab sector: Some NIS 30b. will be allocated over five years to improve conditions in the Arab sector, including investment in education and infrastructure.

Green energy: Legislative amendments will encourage the use of electric vehicles and remove barriers to developing renewable energy power stations.

Supplemental income: Senior citizens will be entitled to an increase of between NIS 473 and NIS 481 per month in their pension payments, bringing them to within 70% of the minimum wage. Couples’ benefits will be increased between NIS 745 and NIA 761 per month, so that their total benefit will be at least NIS 5,865 per month. Disability benefits will also be increased, with an additional NIS 379 for incapacitated people.

Cash usage: To fight money laundering and tax evasion, cash payments to businesses can now be no larger than NIS 6,000, instead of NIS 11,000 previously, and cash transactions between individuals are capped at NIS 15,000 instead of NIS 50,000. People buying cars from private individuals can transfer up to NIS 50,000 in cash.

Business licensing processes will be streamlined, as will requirements for daycare centers.

Pension funds will be strengthened through a state-issued safety net guaranteeing returns of 5.15% per annum.

Two pieces of legislation that were previously included in the EAL, taxes on sugary drinks and on disposable utensils, were taken out and were approved independently.