An Overview of Israel’s Economy
"Israel is one of the most resilient and technologically advanced economies in the world. A small nation in terms of land area, Israel stands at the crossroads of three continents—Asia, Europe and Africa. It shares its borders with Lebanon, Syria, Jordan and Egypt. Despite regional geopolitical challenges, Israel has built a strong, stable and free market economy from scratch, which has demonstrated the ability to endure periods of crisis. Israel is a ‘high income’ nation as per the World Bank classification.” – PUBLISHED NOV 3, 2023.
Monetary Policy Report for the first half of 2023 – Bank of Israel:
“Despite the increase in inflation, forward expectations derived from the capital market for medium and long terms (more than two years) remained anchored within the target range. Inflation in Israel remained lower than in most advanced economies, and is in the lower quarter among OECD countries. Inflation excluding energy and food is also in the lower quarter among OECD countries.
Alongside this, economic activity during the period remained slightly higher than the long-term potential, with some slowdown in the most recent data. The labor market remained tight, and the employment rate remained at a level reflecting full employment. However, there appears to be a decline in demand for workers, particularly in the high-tech sector.
Monetary policy: The Monetary Committee continued its process of monetary tightening, with the aim of returning inflation to the target range, while examining the mix of economic developments in Israel and abroad. During the reviewed period, the Committee raised the interest rate from 3.25 percent to 4.75 percent in four increases: two increases of 0.5 percentage points and two additional increases of 0.25 percentage points. In July, the interest rate was left unchanged.”
“Domestic real activity and the labor market: The data and indicators presented to the Monetary Committee in the first half of 2023 continued to show high economic activity, around the trend that preceded the COVID-19 crisis. National Accounts data for the first quarter indicated growth around the potential rate, but some of the current indicators showed some apparent moderate in the most recent data. The labor market remained tight, and the employment rate remained at a level reflecting full employment. However, there are signs of a decline in the demand for workers, particularly in the high-tech sector.”
Source - Monetary Policy Report for the first half of 2023 | בנק ישראל - הבנק המרכזי של ישראל (boi.org.il)
The budget of the State of Israel and the economic plan for 2023 - 2024
“The budget of the State of Israel for 2023 will be about NIS 484 billion and in 2024 about NIS 514 billion. The budget of the Ministry of Education will be about NIS 77 billion and NIS 82 billion, respectively, the budget of the Ministry of Defense will be approximately NIS 63 billion and NIS 64 billion, respectively, and the budget of the Ministry of Health will be about NIS 44 billion in 2023 and NIS 50 billion in 2024. Also, the Arrangement Law was approved, which includes steps to accelerate the growth of the economy and raise the standard of living of the Israeli citizenry and focuses on five main goals: accelerating the construction of infrastructure and the handling of the housing market, increasing competition and reducing centralization, the strengthening of human capital, the reduction of regulation and bureaucracy for the business sector and for the citizens in general, and the streamlining of the public sector.”
“The Director General of the Ministry of Finance, Mr. Shlomi Heisler: "Today we passed a responsible, reasonable, professional and balanced state budget that comes together with a broad and significant economic plan that will promote and grow the Israeli economy. In the economic plan, there are a series of in-depth measures that include significant investments in infrastructure, accelerating housing solutions, developing the periphery, transportation and energy, reducing bureaucracy for businesses, reducing regulation and streamlining the public sector - steps that will directly contribute to improving the quality of life of all the citizens of the State of Israel. I thank all the employees of the Ministry of Finance who worked on the budget day and night."
Below are the main steps which were approved by the Knesset:
• The National Infrastructures Law: the removal of bureaucratic and regulatory barriers that make it difficult to establish infrastructure projects with the aim of shortening the timetables and thereby reducing road congestion, guaranteeing electricity supply, promoting renewable energy projects and more.
• The Fund for the Expansion of Investment in Residents and Increasing Housing Supply (the "Housing Fund"): a fund will be established to deal with the housing crisis and increase investment in residents, led by the local government, which will allocate regular annual grants to the authorities for every building permit they issue, in a way that will allow them to improve municipal services for residents. The fund's income will come from an increase in the business property tax in the local authorities at a graduated rate according to their economic strength and from a supplementary state budget in the first years. The measure will significantly increase the incentives of the local authorities to increase the supply of housing in their area and will also help in reducing economic disparities between local authorities with high business property taxes and local authorities with lower income.
• The Reduction of the phenomenon of health insurance duplication: the application of an obligation for insurance companies to pay in cases where their insured needs surgery, and this even if he or she performs the surgery through the SHABAN services )additional health services (of the Health Maintenance Organizations (HMOs). At the same time, the cost of the SHABAN premiums will be reduced, in order to ensure that the money ‘will be returned to the citizens’.
• VAT-exempt business owner (dealer): the easing of bureaucratic requirements: The reform establishes a series of regulatory reliefs for business owners (dealers) whose business turnover does not exceed the ceiling of a VAT-exempt dealer (NIS 120 thousand per year). Instead of the existing regulation, these businesses will only require the opening a tax file, coordinating tax and paying tax at the end of the year and all this in a digital way. In addition, as a replacement for recognizing expenses in accordance with the existing rules, expenses were increased at a normative rate of 30%. The proposal is expected to directly save businesses approximately NIS 1.3 billion per year and over a million working days of dealing with bureaucracy and filling out reports.
• Transparency in bank fees (with the aim of reducing the cost of living in banking services): the banks will be required to provide customers with aggregated information each month on the total fees and interest charged from them through the means of communication convenient for the customer (SMS, email, etc.). This will increase the consumer awareness of the customers, which will motivate them to act to reduce the cost of the banking services they consume.
• The reduction of the regulatory burden on food products with the aim of reducing the cost of living: an across the board plan that includes regulatory and bureaucratic reliefs in order to lower the cost of living. The plan includes: extension of the validity days of meat, chicken and fish, a fast track for approval of imports from EU countries and the USA, elimination of the duplication of regulation between the Ministries of Agriculture and Health in the import of meat and the reduction of bureaucracy and inspections in the import procedure. Along with this, we will approve arrangements that harm competition in the fattened livestock and poultry industry.
• The reduction of the regulatory burden on fruits and vegetables with the aim of reducing the cost of living: a plan was approved to reduce regulation on the import of fruits and vegetables through the adoption of a new regulatory model in the field of plant protection, which is expected to significantly increase the variety of products, so that it will be possible to consume fruits and vegetables all year round at prices that suit every pocket.
• The increase of competition in the payments market: the regulation of payment services (PSD) and initiation of payments: legislation was approved for a broad and uniform regulation of the payments market, in a way that will match the technological development in the field in accordance with the European regulation, which will increase competition in the payments market in particular and in the banking market in general. In this way, innovative technological players will be able to operate in Israel while providing reliefs to foreign companies, creating competition in the banking market.
• P2P connectivity: an obligation for transferring funds between P2P applications - obligations will be set on the P2P applications to transfer funds to the customers of competing applications, and to receive funds from these applications, all in a simple and convenient manner. This way the "network effect" will be reduced and sophisticated competition will be possible that will benefit consumers. In addition, the banks will be required to accept transfers using a phone number, so that it will be possible for customers who are not registered for the P2P applications to receive funds in a simple and convenient way.
• The promotion of urban renewal: the benefits and incentives for carrying out building renewal projects will be expanded, similar to the beneficial conditions existing in evacuation and construction projects and the determination of the planning infrastructure for the promotion of urban renewal processes in complexes of urban detached houses. Also, steps will be implemented to optimize the use of brownfield sites used for public institutions in areas prone to urban renewal, with an emphasis on educational institutions, while increasing the mix of uses and urbanism.
• The reform of the district committees for planning and construction: decentralization of planning authority for plans in a limited scope of individual housing units without conditions to the local committees, while strengthening supervision and control. This is in order to focus the activities of the district committees so that they only deal with significant plans and allow the local committees to engage in individual housing unit planning.
• The reduction of the concentration in real estate: regulations to prevent concentration in the Israeli real estate (land), in order to encourage competitiveness in the construction industry and for the purpose of reducing concentration in the real estate (land) market. The regulations will increase competition in the industry and lead to the entry of new and small competitors into the market along with maintaining the required stability and balance in it.
• The streamlining of the procedure for issuing a building permit: expanding a self-licensing route under which a qualified architect issues a building permit, so that it will apply to all local authorities; and the establishment of a national licensing authority that will handle large construction permits that are delayed.
• A program for the strengthening of the technological education in Israel: the program will strengthen the incentives to increase the number of students studying engineering and technical professions at the same time as promoting measures to improve the quality of studies and their adaptation to the labor market. The program will advance several steps to increase the number of ultra-Orthodox men studying in these professions, due to the adaptation of these studies, which are not academic, to the needs of the ultra-Orthodox population.
• Human capital with digital skills: a program to improve the skills of future workers in the economy, children and youth, through their adjustment to the skills needed in the digital age. This, with the aim of promoting human capital and speeding up the labor market with an emphasis on underrepresented populations, women and Arabs.
• The strengthening Israel's technological leadership: the program will strengthen Israel's leadership in the arena of global innovation in technological fields such as artificial intelligence (AI) and bio-convergence. This, through investment in R&D infrastructures for the use of academia and industry, promotion of applied research and cultivation of scientific human capital.
• The reduction of the use of fictitious invoices: in order to fight crime and enable fair competition between businesses that pay taxes legally, it is proposed that invoices over NIS 25,000 issued between dealers will require the approval of the Tax Authority in real time through a system before the invoice is issued. This measure will help the enforcement agencies target the enforcement in the suspicious companies, and will even shorten bureaucratic processes for normative businesses through the establishment of a platform for direct communication with the tax authority.”
Source -Ministry of Finance - The Knesset approved in a second and a third reading the budget of the State of Israel and the economic plan for 2023 - 2024 | Ministry of Finance (www.gov.il)
Building a budget – The Knesset – About the state budget and the state budget proposals in numbers
https://main.knesset.gov.il/en/about/pages/budget/budgetinfo8.aspx
Foreign trade and the current account – Bank of Israel:
Data on goods imports and exports, and data on the Current Account of the Balance of Payments. The import and export data represent international trade in goods between Israeli residents and those of other countries. The current account represents the flows of goods, services, and income (primary and secondary) between Israeli residents and nonresidents. This account is comprised of the goods and services account, the primary income account, and the secondary income account.
For the detailed information click - Foreign trade and the current account | בנק ישראל - הבנק המרכזי של ישראל (boi.org.il)
Israeli OECD economic outlook -
https://issuu.com/oecd.publishing/docs/israel-oecd-economic-outlook-november-2023?fr=xKAE9_zU1NQ