Israel falling behind West on poverty, education and social gaps
Bank of Israel says GDP per capita 14% lower than OECD average; BoI chief says Israel need NIS 2B rise in tax revenue.
When it comes to poverty, social gaps, education and long work hours, Israel, in relation to many Western countries, has a lot of catching up to do, according to the Bank of Israel's Annual Report for 2014.
The report also notes that GDP per capita and per work hour in Israel is 14 percent lower than the OECD average, and that the gap in labor productivity has not narrowed since the 1970s.
On the one hand, the report notes, the unemployment rate is low, most Israelis consider themselves healthy, life expectancy in Israel is among the highest in the world, and the country boasts a relatively high number of university graduates per capita.
On the other, the poverty rate is high, product per work hour is low, PISA test scores are low in relation to other countries, and public spending on welfare is insufficient.
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And if would-be finance minister Moshe Kahlon once thought he'd be able to implement many of his desired economic reforms in the near future, it now appears that he will have his work cut out for him.
Statements voiced on Tuesday by Bank of Israel Governor Karnit Flug on presenting the central bank's report indicate that many of Kahlon's ideas do not fall in line with her policies.
While Kahlon seeks to steer as far away as possible from tax hikes and budget cuts that would impact the public at large, Bank of Israel governor is talking about the need to slash NIS 8 billion from the budget and increase tax revenues by NIS 2 billion at the very least.
"The upcoming budget will be challenging," said Flug, who understands that the government is about to spend a lot of money. "These expenses deviate from the regulation that allows for increasing the budget by only 2.5 percent this year."
Flug isn't enamored either with the talk coming from the prime minister and Defense Ministry regarding the need to increase the defense budget. According to her, any increase in the defense budget would require raising taxes or undermining social services.
"If the defense budget has to be increased, the government will be faced with a tough choice between increasing tax revenues and an additional cut in public services," she said.
The governor is also in favor of abolishing tax exemptions that have no social justification. She didn't say so explicitly on presenting the annual report, but Finance Ministry officials have already proposed dropping the VAT exemption on fruits and vegetables, the VAT exemption in Eilat, and others. Kahlon, it's safe to assume, won't be in any rush to do so.
In summing up, Flug said that the new government must reduce the national debt, cut the budget, raise taxes, invest in infrastructure, develop growth engines and provide more public and social services.
