"The economic debate in Israel has become superficial, extreme, and sometimes violent," said Governor of the Bank of Israel Karnit Flug yesterday. Speaking at the Jerusalem conference of the Institute of Certified Public Accountants in Israel, Flug spoke about the early election and its effect on the Israeli economy, saying, "The economy is stable and able to withstand shocks, and we have quite a lot of experience of shocks like these. It's working fine for the medium term, but beyond this period there is no doubt that the great challenges facing the economy require reforms and decisions that only a stable government can carry out.
"It's important that things should be examined in depth, in a businesslike manner, on the basis of facts, data, and real analysis of processes," Flug added, "This is particularly true now, when the political debate, on economic matters too, has become extreme, sometimes superficial, sometimes even violent. It's important to discuss the issues of the day on the basis of educated analysis, dispassionately, and without deluding ourselves that the problems have easy and simple magic solutions."
Flug estimated that the fiscal deficit for 2014 would be 3% of GDP, lower than the 3.4% deficit planned in the 2015 proposed budget, now abandoned because of the dissolution of the Knesset, and that included the exemption from VAT for first-time homebuyers, the cost of which was estimated at NIS 2-3 billion.
Flug also said that the tax burden in Israel was relatively low, and that this was one of the reasons for Israel's low level of public spending. "Public spending in this country is lower by 12% in GDP terms than the OECD average, which gives a gap of NIS 120 billion. This gives some idea of how far we are from the expenditure by the developed countries on education, health, internal security, and welfare. It stems from our high defense spending and from the fact that we raise far less in tax. If we look at the tax burden, the total taxes we pay amount to 30.6% of GDP, compared with an OECD average of 34%. The sum total of our tax rates mean that we collect much less tax in relation to GDP than other countries. 4% of GDP is NIS 40 billion. These are not small numbers."
Flug went on to say that Israel was still one of the countries with the highest degree of inequality, despite some improvement in 2013. On poverty, Flug said that the rate of poverty among families in which there were two full-time wage earners was "negligible". On education, she pointed out that Israel's achievements in all comparative tests were not good, which she said put into question our ability to grow in the future in all the industries that depended on an advantage in human capital.
Flug said that one of the economy's great challenges was to raise per capita product, which currently stands at 87% of the OECD average, despite the relatively high productivity in high tech. She called for sections of the population underrepresented in the workforce to be integrated into it, while improving earning power by enhancing our human capital, and focusing on investment in R&D and in other factors that promote growth and productivity. "On competitiveness and the business environment too we have plenty of room for improvement," Flug said.
Published by Globes [online], Israel business news - www.globes-online.com - on December 22, 2014
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