Israel

   

Economic Policies

#10
Key Findings
Showing steady economic growth, Israel receives comparatively high rankings (rank 10) in the area of economic policies. Its score on this measure has improved by 0.5 points relative to 2014.

Growth rates have slowed somewhat but remain robust at about 3.1%. After several years of negative inflation figures, this rate has now been in the low positive territory for several years running. The budget deficit has jumped to 3.7%, exceeding a legally mandated deficit ceiling for several years running, prompting warnings from international financial observers.

Unemployment rates are low, with the economy hovering near full employment. Employment rates among ultra-Orthodox Jewish men and Israeli Arab women are considerably lower than in the general population. The government has adopted a Danish-style “flexicurity” model of labor-market regulation.

Taxation policy is deliberately somewhat regressive, involving VAT and an income tax that applies disproportionately high rates to middle-income earners. Research and development funding is extraordinarily strong, and a new Innovation Authority began work in early 2017. A significant portion of state innovation funding goes to supporting international cooperation.

Economy

#9

How successful has economic policy been in providing a reliable economic framework and in fostering international competitiveness?

10
 9

Economic policy fully succeeds in providing a coherent set-up of different institutional spheres and regimes, thus stabilizing the economic environment. It largely contributes to the objectives of fostering a country’s competitive capabilities and attractiveness as an economic location.
 8
 7
 6


Economic policy largely provides a reliable economic environment and supports the objectives of fostering a country’s competitive capabilities and attractiveness as an economic location.
 5
 4
 3


Economic policy somewhat contributes to providing a reliable economic environment and helps to a certain degree in fostering a country’s competitive capabilities and attractiveness as an economic location.
 2
 1

Economic policy mainly acts in discretionary ways essentially destabilizing the economic environment. There is little coordination in the set-up of economic policy institutions. Economic policy generally fails in fostering a country’s competitive capabilities and attractiveness as an economic location.
Economic Policy
8
As in previous years, while Israel’s economic policy has some shortcomings, it is fundamentally strong. It largely provides for a reliable economic environment, renders the country internationally competitive and ensures it remains attractive as a location for economic activity.

According to the Bank of Israel’s monetary policy report for the first half of 2019, Israel’s economic growth rate is expected to be relatively low at 3%, following a period of deceleration during the second and third quarters of 2018. The report also highlights the large degree of uncertainty regarding fiscal policy, as the coalitional negotiations remain ongoing And yet, the Bank of Israel is positive about Israel’s economic performance, and predicts that Israel’s economic growth will be 3.1% in 2019 and 3.5% in 2020. Though the inflation rate is projected to be slightly higher than what had been assumed in previous reports (1.6% in 2019 and 2020). For the past year (September 2018 to September 2019), the Bank of Israel calculated the inflation rate to be 0.3%.

The cost of living remains high relative to the OECD average, particularly for housing. Housing prices have increased in recent years, making home ownership hard to attain for young and middle-class people. Yet, the rate of growth declined in 2017, which might have been as a result of aggressive government housing subsidies for middle-class buyers. In addition, rent costs also increased, though not as sharply as ownership costs. This trend mostly affects the middle and lower classes, and was one of the main causes of the 2011 social-justice protest. According to a 2018 OECD report, public transport deficiencies also play a role in worsening the cost of living, as residents of Israel’s peripheral areas cannot easily commute to central regions for work despite Israel being a relatively small country.

Regarding international competitiveness, Israel appears to be relatively attractive to foreign investors. According to the latest annual report of Israel’s Central Bureau of Statistics, Israel’s balance of payments has been positive for over a decade (though with a small decrease since 2015), while the number of foreign investments in Israel has been rising every year. The report also shows that unemployed workers as a percentage of the labor force decreased over the past five years to 4% in 2018. Though the labor force participation rate also decreased over the same period, to 63.9% in 2018.

Citations:
Bank of Israel, Monetary Policy Report, Second Half of 2019, No 51, January 2020,
https://www.boi.org.il/he/NewsAndPublications/RegularPublications/DocLib3/MonetaryPolicyReport/MPR201902e.pdf


OECD Economic Outlook, Volume 2018, Issue 2 – Preliminary Version, November 2018: http://www.oecd.org/eco/outlook/economic-forecast-summary-israel-oecd-economic-outlook.pdf

“Bank of Israel – Publications and Messages.” In the Bank of Israel’s official website. Last seen: November 5th, 2019. (Hebrew)

“The Monitarian Policy Report – First Half of 2019.” In the Bank of Israel’s official website. July 25th, 2019. (Hebrew)

Israel. The Social Security Institute. 2017: The Magnitude of the Poverty and the Social Gaps. Jerusalem. 2018. Retrieved from https://www.btl.gov.il/Publications/oni_report/Pages/default.aspx (Hebrew)

Israel. The Central Bureau of Statistics. Statistical Annal [or Annual] to Israel, 2019. 70. July 29th, 2019. (Hebrew)

Amit, Hagai, “Israel’s Unemployment Rate Falls to Lowest Rate in Decades,” Haaretz, 21.8.2017: https://www.haaretz.com/israel-news/business/1.808252

Endeweld, Miri, et al. “Poverty and Social Gaps Annual Report.” National Insurance Institute. https://www.btl.gov.il/English%20Homepage/Publications/Poverty_Report/Pages/default.aspx, Accessed September 13 (2016): 2018.

Arlosoroff, Meirav, “Israel May Raise 2019 Budget Deficit to 2.9%,” Haaretz, 23.11.2017: https://www.haaretz.com/israel-news/1.824538

Barkat, Amiram, “Israel’s poverty remains worst in OECD,” Globes, 6.12.2017: http://www.globes.co.il/en/article-israels-poverty-remains-worst-in-oecd-1001214592

“Economic Survey of Israel 2018” OECD Website. http://www.oecd.org/eco/surveys/economic-survey-israel.htm

“Economic Survey of Israel 2016” OECD Website. http://www.oecd.org/eco/surveys/economic-survey-israel.htm

“Israel’s statistical profile,” OECD Data website:
https://data.oecd.org/israel.htm

“Israel central bank to keep key interest at 0.1% as inflation tame: Reuters poll,” Reuters, 23.11.2017: https://www.reuters.com/article/us-israel-cenbank-rates/israel-central-bank-to-keep-key-interest-at-0-1-percent-as-inflation-tame-reuters-poll-idUSKBN1DN1CZ

Filut, Adrian, “Israel goes down to the second place in poverty rates in the west,” Calcalist website, 05.08.2018:
https://www.calcalist.co.il/local/articles/0,7340,L-3743662,00.html (Hebrew)

Klein, Zeev, “OECD: Israeli economy will grow 3.4% in each of next two years,” Israel Hayom, 29.11.2017: http://www.israelhayom.com/2017/11/29/oecd-israeli-economy-will-grow-3-4-in-each-of-next-two-years/

Milman, O. and Zinger, R., “2015 budget: A high deficit and no growth engines,” Calcalist website, 28.9.20
14: http://www.calcalist.co.il/local/articles/0,7340,L-3641611,00.html (Hebrew).

Yeshayahou, Kobi, 2017, “Merrill Lynch sees weaker shekel in 2018,” Globes, 6.12.2017: http://www.globes.co.il/en/article-merrill-lynch-sees-weaker-shekel-in-2018-1001214643

The Marker and Israel Fisher, “Israel’s GDP Growth to Exceed 3% in 2019, OECD Says,” Haaretz, 29.11.2017: https://www.haaretz.com/israel-news/business/1.825553

Inflation over the past year December, 2016 to December, 2017, Bank of Israel website, http://www.boi.org.il/en/MonetaryPolicy/Data/Pages/Default.aspx

Barkat, Amiram, “Israel’s economy grew 3% in 2017,” Globes, 31.12.2017, http://www.globes.co.il/en/article-israels-economy-grew-3-in-2017-1001217569

Tali Heruti-Sover, “Israel’s Unemployment Rate Drops to 3.7%, Part-time Jobs on the Rise“, Haaretz, 28.2.2018:
https://www.haaretz.com/israel-news/business/israel-s-unemployment-rate-drops-to-3-7-part-time-jobs-on-the-rise-1.5865222

Labor Markets

#9

How effectively does labor market policy address unemployment?

10
 9

Successful strategies ensure unemployment is not a serious threat.
 8
 7
 6


Labor market policies have been more or less successful.
 5
 4
 3


Strategies against unemployment have shown little or no significant success.
 2
 1

Labor market policies have been unsuccessful and rather effected a rise in unemployment.
Labor Market Policy
8
Labor market indicators are still strong, as the economy is hovering around full employment. According to the Central Bureau of Statistics’ latest annual report, unemployment has been decreasing over the past five years. In 2018, the unemployment rate was 4%. On the other hand, Israel’s labor force participation rate has shrunk over the past five years and, in 2018, it stood at 63.9%.

Israel’s labor policy focuses on providing incentives for both members of two-adult households to work, and on expanding job-training services for low-skilled workers. The government has recently reformed the “earning potential” scale used for purposes such as calculating taxes and daycare subsidies; increased funding for working mothers and labor-training programs; and introduced a negative tax for low-income workers. However, the OECD maintains that the implementation of policies in this area is slow and underfunded.

The Shoresh Institution for Socioeconomic Research reports a strong correlation between economic growth and the quality of schooling in Israel, including for ultra-Orthodox Jews and Arab Israelis. The Ministry of Economy is currently promoting several programs to encourage and assist members of ultra-Orthodox Jewish communities to obtain academic qualifications, which will help them fit into modern workplaces. On the other hand, ultra-Orthodox Jewish political parties have been consistent partners in government coalitions, with recent governments paradoxically promoting incentives for not participating in the labor market (e.g., higher childcare subsidies, and bigger budgets for “Kollels” and “Yeshivas”). Indeed, the government has targeted a 63% employment rate for ultra-Orthodox Jewish men in 2020. However, the rise in the employment rate of ultra-Orthodox Jewish men since 2015 plateaued at 51% and, in 2018, decreased to 50%. The employment rate of ultra-Orthodox Jewish women, on the other hand, increased over the same period and in 2018 stood at 76%. Among the non-ultra-Orthodox Jewish population, the employment rate for men and women in 2018 stood at 87.5% and 83.1%, respectively. In addition, a recent study showed that educational achievement is lower among the ultra-Orthodox Jewish population than for the general population, as fewer ultra-Orthodox Jewish students are eligible for a matriculation certificate – 12% of ultra-Orthodox Jewish students are eligible, compared to 77% in the general not ultra-Orthodox Jewish population. In 2017, only 3.5% of all the university students in Israel were ultra-Orthodox Jews. Still, in both areas, there is a careful increasing trend.

The employment rate of Arab Israelis is also relatively low. According to the Central Bureau of Statistics, while the general population’s employment rate in 2018 (including Arab Israelis) stood at 63.9%, the employment rate of Arab Israeli workers stood at 45.9%. The employment rate for men is also significantly higher than that for women, being 61.3% and 30.4% respectively. On the other hand, women tend to work in more academic professions than men, rates were 31% and 10% respectively. According to a 2018 study (that relied on data from 2017), educational attainment among Arab Israelis is on average lower than in the general population. In the Arab education stream, 64.2% of students are eligible for matriculation compared to 79.5% of students in the Hebrew education stream. Meanwhile, Arab Israeli university students constitute only about 13% of the entire university student body. Nevertheless, the proportion of Arab Israeli students is increasing gradually. On 30 December 2015, the government of Israel announced Decision 922, a development to be implemented between 2016 and 2020. The plan commits to vastly increasing funding for Arab Israeli development projects, including budgets for education. Two years into its implementation, the plan is being implemented and developments are being made although at a slightly slower pace than anticipated.

Israeli government largely supports the free market and its labor-protection laws are seen by the OECD as reasonably flexible. The government has adopted the Danish “flexicurity model” of labor-market regulation. Based on trilateral agreements between the government, employers and unions, the model aims to improve the economic status of both unionized and unemployed workers by ensuring that workers receive severance packages and unemployment benefits when they lose jobs, while allowing employers considerable hiring-and-firing flexibility. From 2014 to 2017, the monthly minimum wage in Israel was raised from ILS 4,300 to ILS 5,300 as part of an agreement between the Histadrut Labor Federation and business leaders.

Citations:
Ben David, Dan, The Shoresh Handbook. Education and its impact in Israel, 2017-2018. http://shoresh.institute/ShoreshHandbook2017-2018English.pdf


Elran, Meir, et al. “Two Years Into the Five-Year Plan for Economic Development of the Arabs in Israel,” INSS Insight, 993. November 22nd, 2017. Retrieved from https://www.inss.org.il/publication/two-years-five-year-plan-economic-development-arabs-israel/

Hajj Yahya, Nasrin Haddad, and Yael Bar-Cohen. The Arab Population in Israel in Numbers: State Characteristics According to the Central Bureau of Statistics’ Survey, 2018. Jerusalem: The Israel Democracy Institute, 2019. Retrieved from https://www.idi.org.il/books/26352 (Hebrew)

Israel. The Central Bureau of Statistics. Statistical Annal [or Annual] to Israel, 2019. 70. July 29th, 2019.. (Hebrew)

Malach, Gilad. Turning Point: A Road-Map [Lit. layout, draft, sketch] for the Integration of the Ultra-Orthodox in the Market and Society. Elections in Israel series. Jerusalem: The Israel Democracy Institute, 2019. Retrieved from https://www.idi.org.il/books/25986 (Hebrew)

Malach, Gilad, and Lee Cahaner. The Yearbook of Ultra-Orthodox Society in Israel, 2018. The Ultra-Orthodox in Israel series. Jerusalem: The Israel Democracy Institute, 2018. Retrieved from https://www.idi.org.il/books/25378 (Hebrew)

“Minister of Security Announced a Special Condition in the Rear.” In Kipa website.. November 12th, 2019. (Hebrew)

Protection of Workers in Times of Emergency Act, 2006. (Hebrew)

Tali Heruti-Sover, “Israel’s Unemployment Rate Drops to 3.7%, Part-time Jobs on the Rise“, Haaretz, 28.2.2018 (Hebrew): https://www.haaretz.com/israel-news/business/israel-s-unemployment-rate-drops-to-3-7-part-time-jobs-on-the-rise-1.5865222

“Foreigners in Israel Data,” Administration of Border Crossings, Population and Immigration report, 2.2018 (Hebrew): https://www.gov.il/BlobFolder/generalpage/foreign_workers_stats/he/q2_2018.pdf

Levi, Dotan, “How Did It Happen That 1,800 Chinese Workers Assigned To Israel – Are Unrequired?, Calcalist website, 26.07.18 (Hebrew):
https://www.calcalist.co.il/real_estate/articles/0,7340,L-3743113,00.html

” Globes correspondent, “Bank of Israel keeps rate at a historic low,” Globes, 27.11.2017 (Hebrew): http://www.globes.co.il/en/article-bank-of-israel-keeps-rate-at-historic-low-1001213442

Toi Staff and AFP, “Israel signs deal to bring Chinese laborers, but they won’t work in West Bank,” Times of Israel, 23.4.2017: https://www.timesofisrael.com/israel-signs-deal-to-bring-chinese-construction-workers-but-they-wont-work-in-west-bank/

Weissberg, Hila, “Why has the number of ultra-Orthodox men employees been halted?,” Israeli Broadcasting Corporation, 26.9.2017 (Hebrew): http://www.kan.org.il/Item/?itemId=23023

Workers in Israel. How Ethno-Nationalism prevents Structures of Representation. In: Journal for Societal Progress, vol 5 (2), p. 88-96. www.momentum-quarterly.org

CBS: “Labour Force Survey Data, December, 4th Quarter and Annual data of 2017,” 31.01.2018, http://www.cbs.gov.il/reader/newhodaot/hodaa_template_eng.html?hodaa=201820029

Yefet, Nati, “Israel eases the entry of foreign tech experts,” 01.01.2018 (Hebrew), http://www.globes.co.il/en/article-israel-eases-entry-of-foreign-tech-experts-1001217775

Cahaner, Malach and Hoshen, “Israel’s ultra-orthodox society’s yearbook 2017,” Israel Democracy Institute, 31.12.2017:
https://www.idi.org.il/media/9930/the-yearbook-of-haredi-society-in-israel-2017.pdf

“The Ministry of Labor and Social Services initiate new program – study and work in high-tech in less than a year – for free,” Ministry of Labor, Social Affairs and Social Services website, 07/05/2018 (Hebrew):
http://www.molsa.gov.il/Dover/Pages/NewsPage.aspx?ListID=76c73ffb-5c7e-40f4-bdc1-20a68f9aa9e8&WebId=57bafbcd-ffba-4897-85eb-c3379813c505&ItemID=873

Jabareen Yousef, “Israeli-arab employment: the challenge of Israel’s economy,” Israel Democracy Institute, 12/08/2012 (Hebrew): https://bit.ly/2XLsTFs

Taxes

#29

How effective is a country’s tax policy in realizing goals of revenue generation, equity, growth promotion and ecological sustainability?

10
 9

Taxation policy fully achieves the objectives.
 8
 7
 6


Taxation policy largely achieves the objectives.
 5
 4
 3


Taxation policy partially achieves the objectives.
 2
 1

Taxation policy does not achieve the objectives at all.
Tax Policy
6
According to the Ministry of the Treasury, Israel’s taxation policy appears to be quite effective. Over the past five years, Israeli authorities have collected more in tax revenue than had been projected in the government’s budget proposals.

Israel’s taxation policy is somewhat regressive. A large share of taxes in Israel are indirect. This includes VAT, which is levied equally on all products. Furthermore, although the direct income tax is progressively structured, and a large portion of the population makes too little money to pay any income tax at all, the system creates a curve that forces middle-income individuals to pay proportionately more tax than high-income individuals. This apparent distortion is an intentional economic strategy meant to induce growth by reducing the tax burden associated with investments and companies. While controversial, it is not necessarily unfair as such.

Israel utilizes its tax system as a political instrument. For example, it offers tax reductions to army veterans. However, in most instances, the Israeli tax system has a valid rationale for tax reductions that appear to violate the principle of horizontal or vertical equality. The Encouragement of Capital Investments Law (ECIL) provides tax discounts for factories and businesses that invest in peripheral areas. This is done both to keep Israel’s taxes competitive in the global market and to incentivize the creation of jobs in disenfranchised regions. The ECIL has been criticized in recent years, especially at the end of 2017 following the large layoff of Teva employees – an Israeli pharmaceutical company that received large tax benefits. In addition, the tax reductions and other benefits for army veterans were criticized at the time of their formulation, as most Arab Israelis don’t serve in the Israel Defense Forces (IDF) and such policies would discriminate against them.

The current minister of finance, Moshe Kahlon, is opposed to rising taxes and has cut many taxes while simultaneously spending generously on plans to lower housing and living costs. Notably, his flagship Price for the House-Buyers Program (initiated in 2013) has so far cost the government more than ILS 5 billion. This policy was criticized for being short-sighted by the former governor of the central bank of Israel, Karnit Flug.

In September 2018, Israel signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit-Shifting (“Multilateral Instrument,” MLI), a multilateral agreement that updates previous bilateral agreements between signatory countries in a way that will make tax evasion harder for global corporations.

Citations:
Barket, Amiram, “BoI research chief warns against tax cuts,” Globes, 11.12.2017: http://www.globes.co.il/en/article-boi-research-chief-warns-against-tax-cuts-1001215058

Barket, Amiram, “Israel’s budget surpluses are becoming a habit,” Globes, 15.10.2017: http://www.globes.co.il/en/article-israels-budget-surpluses-are-becoming-a-habit-1001207772

Barket, Amiram, “Israel thinks it’s an open economy. It isn’t.,” Globes, 14.02.16: http://www.globes.co.il/en/article-israel-thinks-its-an-open-economy-it-isnt-1001102598

“Economic Survey of Israel 2016.,” OECD Website.http://www.oecd.org/eco/surveys/economic-survey-israel.html

Israel. Ministry of the Treasury. The State’s Budget: Proposal for the Monetary Years 2015-2016; Principles of the Budget and the Multi-Year Budget Plan. Jerusalem: The Ministry of the Treasury, 2015. Retrieved through: https://mof.gov.il/BudgetSite/statebudget/BUDGET2015_2016/Pages/default.aspx (Hebrew)

Israel. Ministry of the Treasury. The State’s Budget: Proposal for Monetary Years 2017 and 2018; Principles of the Budget and the Multi-Year Budget Plan. Jerusalem: The Ministry of the Treasury, 2016. Retrieved through: https://mof.gov.il/BudgetSite/statebudget/BUDGET2017_2018/Pages/default.aspx (Hebrew)

Israel. Ministry of the Treasury. The State’s Budget: Proposal for Monetary Year 2019; Principles of the Budget and the Multi-Year Budget Plan. Jerusalem: The Ministry of the Treasury, 2018. Retrieved through: https://mof.gov.il/BudgetSite/statebudget/BUDGET2019 (Hebrew)

Madina, Barak. “Discrimination Under the Auspices of the State.” In Ha’aretz’s website. May 20th, 2014.

Raz-Haymovitch, Michal. “The Shopping-Bags Law Proves Itself: Reduction of 80% in the Shopping-Bags Consumption.” In Globes’ website.. July 15th, 2018. (Hebrew)

Solomon, Shoshanna, “Israel cuts product tariffs in a bid to lower cost of living,” The Times of Israel, 11.12.2017: https://www.timesofisrael.com/israel-cuts-product-tariffs-in-bid-to-lower-cost-of-living/

Solomon, Shoshanna, “Netanyahu hints at Israeli corporate tax cut after the US slashes rate,” The Times of Israel, 3.12.2017: https://www.timesofisrael.com/netanyahu-hints-at-israeli-corporate-tax-cut-after-us-slashes-rate/

Steiner, Talia. “For Whom was the Affirmative Action Meant?.” In the Israeli Democracy Institute’s official website.. June 22nd, 2011. (Hebrew)

The Disposable Carrying Bags Employment Reduction Act, 2016. (Hebrew)

The Cleaning Protection Act, 1984. (Hebrew)

Waksman, Avi, “Wanted: A Tax Policy for Israel’s Economy, Not for Elections,” Haaretz, 20.09.2018:
https://www.haaretz.com/israel-news/business/wanted-a-tax-policy-for-israel-s-economy-not-for-elections-1.6492218

Neuman Efrat and Waksman Avi, “Israel gets a new weapon in the fight against tax evasion,” The Marker, 17.09.2018:
https://www.themarker.com/law/.premium-1.6479399

Vaxman, Avi, “End to the tax surplus celebration? 600 million shekels forecast miss,” The Marker, 09.07.2018:
https://www.themarker.com/news/macro/1.6249613

Budgets

#30

To what extent does budgetary policy realize the goal of fiscal sustainability?

10
 9

Budgetary policy is fiscally sustainable.
 8
 7
 6


Budgetary policy achieves most standards of fiscal sustainability.
 5
 4
 3


Budgetary policy achieves some standards of fiscal sustainability.
 2
 1

Budgetary policy is fiscally unsustainable.
Budgetary Policy
6
Israeli’s history of successful budgetary reform continues to contribute to the stabilization of the Israeli economy. Along with prudent monetary policies, budgetary reform measures helped the country weather the recent global economic crisis relatively successfully.

After the economic crises of the mid-1980s, strict budgetary-discipline laws were enacted: The Budget Foundations Law set scrupulous spending procedure regulations and implemented deficit-reporting requirements, and another law prohibited the central bank from providing loans to the government, ensuring that future deficits would be financed by borrowing from the public and abroad rather than through direct monetary injections. Consequently, fiscal power was centralized, giving the Ministry of Finance’s budget department the power to impose a policy of budgetary discipline.

Two crucial additional tools, the Arrangements Law (Hok Ha-Hesderim) and the Budget Deficit Reduction Law, redefined the financial and economic structure of the Israeli government. The Arrangements Law is an omnibus law passed in parallel with each budget, consisting of numerous restrictions and amendments designed to secure the state’s financial goals.

According to figures released by the Ministry of Finance, Israel ended 2019 with a fiscal deficit amounting to 3.7% of GDP, which is above the level of 2.9% of GDP planned in the 2019 budget.
Regarding the budget deficit, according to recent preliminary reports (October 2018), the Israeli government has exceeded the deficit ceiling set by the Budget Deficit Reduction Law following a jump of more than one percentage point (from 2.5% to 3.8%) in the deficit. If Israel exceeds the deficit ceiling, Israel’s credit rating might suffer, with serious repercussions on the interest rate of its external deficit. In 2019, the IMF published a report stating that – without reducing the deficit immediately – the deficit will increase and Israel’s international credit rating will be affected. The report reinforces another OECD report, according to which Israel’s deficit will increase in 2019. With Israel’s political parties unable to form a government in 2019, it seems that any actions to reduce the deficit will wait for the next government.

Citations:
Barkat, Amiram, “Israel’s 2019 fiscal deficit 3.7% of GDP,” Globes, 07.01.2020,
https://en.globes.co.il/en/article-israels-2019-fiscal-deficit-37-of-gdp-1001313862


Barkat, Amiram, ”Rising budget deficit threatens Israel’s credit rating,” Calcalist, 9.10.18 :
https://en.globes.co.il/en/article-rising-budget-deficit-threatens-israels-credit-rating-1001255656

“It’s no longer “just” a budget pit – it’s a sinkhole,” Calcalist, 7.5.19 (Hebrew)
https://www.calcalist.co.il/local/articles/0,7340,L-3761715,00.html

Hattis Rolef, Susan, Two-Year (Biennial) Budgets, The Knesset Research and Information Center, 15.7.2009: https://www.knesset.gov.il/mmm/data/pdf/me02392.pdf

Milman, Omri, “The Supreme Court have ‘gave a red ticket’ to the biennial budget,”

“Mission Concluding Statement,” International Monetary Fund, 8.2.2017: http://www.imf.org/en/News/Articles/2017/02/08/mcs02082017-Israel-Staff-Concluding-Statement-Of-The-2017-Article-IV-Mission

“The Deficit will grow to 50 billion NIS,” Israel Hayom (Israel Today), 25.5.19 (Hebrew)
https://www.israelhayom.co.il/article/660321

Research, Innovation and Infrastructure

#2

To what extent does research and innovation policy support technological innovations that foster the creation and introduction of new products?

10
 9

Research and innovation policy effectively supports innovations that foster the creation of new products and enhance productivity.
 8
 7
 6


Research and innovation policy largely supports innovations that foster the creation of new products and enhance productivity.
 5
 4
 3


Research and innovation policy partly supports innovations that foster the creation of new products and enhance productivity.
 2
 1

Research and innovation policy has largely failed to support innovations that foster the creation of new products and enhance productivity.
R&I Policy
10
Israel’s research and development (R&D) sector is based on three pillars: scientific research performed primarily in academia, research conducted in government institutes, and research conducted by civil-industrial partnerships overseen the by Ministry of Finance. For many years, Israel has led the world in research and development (R&D) investment, spending more on R&D as a share of GDP than any other developed country.

In 2014, the government cabinet approved proposals to encourage technological innovation. The Israel Innovation Authority began its activity in early 2017. The authority was established based on the model of the Office of the Chief Scientist in the Israeli Ministry of Economy and Industry, with the goal of implementing the R&D law, and providing high-quality and effective services for the Israeli innovation ecosystem. The authority had a budget of close to ILS 200 million in 2017, but used only ILS 100 million of it. Nevertheless, in 2018, the authority’s budget was increased by 6%. However, it has been reported that the authority is lacking around ILS 100 million, which Israeli companies, including startups, will need at the end of 2019.

A large portion of Israel’s R&D policy is directed toward international cooperation. About ILS 104 million of the authority’s budget is allocated to international cooperation. In 2019, Israel has engaged in around 70 different international cooperative research ventures with a variety of European countries and organizations. Overall, 90 Israeli companies have received grant or other financing to conduct R&D activities with companies from other countries. In 2017, 250 grant applications and projects had received €1.35 billion, while the return to Israeli entities in the form of grants reached €1.7 billion. Israel has also signed 29 bilateral R&D agreements, which fund around 100 new projects each year, and is a partner in five EU programs, including Eureka, Eurostars, the Competitive and Innovation Program – Enterprise Europe Network (CIP-EEN), Galileo and Sesar. In terms of both policy and budgets, the most significant international involvement is through framework programs, such as Horizon 2020, which are managed by the Israel-Europe R&D Directorate.

Citations:
Cornell University, INSEAD, and the World Intellectual Property Organization (WIPO), The Global Innovation Index 2019: Creating Healthy Lives – The Future of Medical Innovation, Genf 2019, https://www.globalinnovationindex.org/gii-2019-report

Cocco, Federica, “How Israel is leading the world in R&D investment,” Financial Times, 8.2.2017: https://www.ft.com/content/546af0b2-ede5-11e6-930f-061b01e23655

Public announcement from Israel central statistics bureau, “Survey of Knowledge Commercialization Companies in Israel 2017 Reports on Inventions, Patents,

License Agreements, Income, and Startup Companies,” 27.08.2018 (Hebrew):
http://www.cbs.gov.il/reader/newhodaot/hodaa_template.html?hodaa=201812257

“The Innovation Authority delays payments of NIS 100 million to 250 startups” Calcalist 4.11.19
https://www.calcalist.co.il/internet/articles/0,7340,L-3772996,00.html


“The CEO of the social-economic cabinet approved the establishment of an authority for technological innovation,” Minister of the Economy website 15.9.2014: http://economy.gov.il/Publications/PressReleases/Pages/CabinetForTechnologicalIn novation.aspx (Hebrew)

The R&D fund – Support to Research and Technological Innovations, ”The Ministry of Economy and Industry website (Hebrew)

Robin, Aliran, “The Budget of the Israel Innovation Authority will be cut in 100 Million Shekels,” The Marker, 11.8.16: (Hebrew)

http://www.themarker.com/technation/1.3036681 “2016 Israel Innovation Authority Report Presented to Prime Minister,” 29.6.2016: http://www.imra.org.il/story.php3?id=70918

Innovation in Israel overview 2018-2019, Israel Innovation Authority, 2019 (Hebrew)
https://innovationisrael.org.il/en/sites/default/files/2018-19_Innovation_Report.pdf

Israel Innovation Authority. “Innovation Report 2018.”
https://innovationisrael.org.il/en/report/innovation-report-2018

Israel Innovation Authority, “Report 2017,” http://economy.gov.il/English/NewsRoom/PressReleases/Documents/2017IsraelInnovationAuthorityReport.pdf

Dutta, Soumitra, Bruno Lanvin, and Sacha Wunsch-Vincent (Editors), “The Global Innovation Index 2017. Innovation Feeding the World,” https://www.globalinnovationindex.org/gii-2017-report

Cornell University, INSEAD, and WIPO, “The Global Innovation Index 2019: Energizing the World with Innovation,” Ithaca, Fontainebleau, and Geneva, 2018: https://www.wipo.int/edocs/pubdocs/en/wipo_pub_gii_2019.pdf

Getz, Daphne, Lavid, Noa and Barzani, Ella. “R&D Outputs in Israel: International Comparison of Scientific Publications,” 2017, Haifa: Samuel Neaman Institute, 2018. https://www.neaman.org.il/EN/R-D-Outputs-in-Israel-International-Comparison-of-Scientific-Publications-2017

“Operational budget for the Israel Innovation Authority,” Key to Israel’s Budget, 11.10.2018 (Hebrew):
http://next.obudget.org/i/budget/00383001/2019?li=3

Bilateral Programs, ISRED, 17.10.2018:
http://www.iserd.org.il/binational_programs

“EU – Israel Research and innovation cooperation – 20 years of success, partnership, and friendship,” The European Commission, 12.01.2017:
https://ec.europa.eu/research/iscp/index.cfm?pg=israel

“Yair Lapid Blames, But does the Innovation Authority budget really cut?” Globes, 27.1.19 (Hebrew)
https://www.globes.co.il/news/article.aspx?did=1001270426

Global Financial System

#10

To what extent does the government actively contribute to the effective regulation and supervision of the international financial architecture?

10
 9

The government (pro-)actively promotes the regulation and supervision of financial markets. It demonstrates initiative and responsibility in such endeavors and often acts as an international agenda-setter.
 8
 7
 6


The government contributes to improving the regulation and supervision of financial markets. In some cases, it demonstrates initiative and responsibility in such endeavors.
 5
 4
 3


The government rarely contributes to improving the regulation and supervision of financial markets. It seldom demonstrates initiative or responsibility in such endeavors.
 2
 1

The government does not contribute to improving the regulation and supervision of financial markets.
Stabilizing Global Financial System
8
Israel has several regulatory institutions tasked with supervising financial markets. The most prominent include the Israel Securities Authority (ISA) and the Israel Antitrust Authority. Recent challenges tackled by the ISA include banning binary options trading, the establishment of a committee to study the regulation of cryptocurrencies, and an investigation into a local telecommunications giant – Bezeq (known as “case 4,000”). These institutions are responsible for ensuring market stability and fair competition. In the aftermath of the global financial crisis, different government organizations worked to limit risk in the banking and insurance industry. Actions include tightening the rules on mortgages, adopting Basel III regulation and raising minimum capital ratios. Several committees have been formed to investigate structural reforms and submit policy recommendations. Both OECD and central bank assessments have been cautiously optimistic, with the latter pointing to important regulatory tools that are currently being developed for future implementation.

In 2016, following OECD recommendations, the government approved the creation of a new capital authority. The Department of Capital in the Ministry of Finance has been shuttered, and a new, independent authority put in its place, although the finance minister still oversees this body. Among its fields of responsibility, the new authority is in charge of ensuring the stability of regulated financial institutions and making sure they fulfill their obligations to their customers. According to the 2017 annual report of the authority, it supervises approximately ILS 1.5 trillion in funds and 2,000 finance services providers, and led to many changes in the financial regulatory regime, including the assignment of protected bonds to retired citizens, the return of surplus savings from the national car accident victims fund to insurance-holding car-owners, and tighter controls on money laundering and financing terrorism. In November 2019, Israel decided to establish a mechanism to oversee foreign investments, especially Chinese investments.

Israel’s Consumer Protection and Fair Trade Authority participates in various international forums to enhance cooperation and information transparency between Israel and other countries or economic organizations. According to the authority, most countries share similar practices with Israel, which facilitates information sharing and cooperation. For example, Israel is a member of the OECD Committee on Consumer Policy, which publishes guidelines and recommendations on consumer policy in the OECD. Israel has adopted many of these recommendations. Israel is also one of 60 countries that participate in the International Consumer Protection and Enforcement Network (ICPEN). ICPEN is responsible for research and analysis on consumption, facilitates the exchange of information, develops guidelines, and is involved in economic law enforcement activities as part of this network.

Citations:
“Financial stability report,” Bank of Israel 2014 (Hebrew). “Israel – Economic forecast summary,” November 2014. http://www.oecd.org/economy/israel-economic-forecast-summary.htm.

ISA annual report 2017, ISA website, 27.06.2018:
http://www.isa.gov.il/sites/ISAEng/1489/1512/Documents/ENG-FINAL.pdf

Ministry of Finance, The Authority for Capital Market, Insurance and Savings, Annual report 2017 chapter 1, 01.07.2018(Hebrew):
https://mof.gov.il/hon/documents/report2017_chapter1.pdf

Sasson, Asa, “The government approved the creation of the new finance authority,” The Marker 13.03.2016(Hebrew): http://www.themarker.com/markets/1.2881163

The Consumer Protection and Fair Trade Authority – International Activity, Israel Government, 2019 (Hebrew)
https://www.gov.il/he/Departments/General/cpfta_about_international_activity

Herb, Keinon, “Under U.S. Pressure, Israel Okays Mechanism to Oversee Chinese Investments,” Jerusalem Post, 30.10.2019,
https://www.jpost.com/Israel-News/Under-US-pressure-Israel-okays-mechanism-to-oversee-Chinese-investments-606326
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