Treasury reforms target competitiveness, cost of living
Feb 07, 2013 (Globes - McClatchy-Tribune Information Services via COMTEX) --
The economic plan being drawn up by the Ministry of Finance, and which will be submitted to Prime Minister Benjamin Netanyahu next week, includes dozens of structural reforms in the 2013 economic arrangements bill. Sources inform "Globes" that the reforms are in five areas: housing, competition and the cost of living, the labor market and productivity, public sector efficiency, and bureaucratic burden and over-regulation.
The structural reforms are intended to create a foundation for sustainable growth, although their effects seem to be mainly in the long term. Nonetheless, the markets, rating companies, and international organizations are giving increasing weight to these changes when deciding on investments and ratings.
The structural reform's centerpiece is competition and the cost of living, on which Netanyahu has promised to focus. The Ministry of Finance's Budget Department plans to implement reforms in almost every sector of the economy: food, aviation (open skies), cement, import and standards barriers, telecommunications, energy (including natural gas and the threat of a Delek Group Ltd. (TASE: DLEKG) Noble Energy Inc. (NYSE: NBL) monopoly), Israel Electric Corporation (IEC) (TASE: ELEC.B22), Mekorot National Water Company, and motor vehicles.
The Ministry of Finance has also mapped the opponents to the proposed reforms. Some reforms are already moving forward, while others are at a way station, such as the Tzemach Committee on natural gas, and the electricity market reform.
Many of the proposed reforms were mentioned in the Trajtenberg Report, which also tried to tackle the lack of competition in some markets. Here too, the problem is not a lack of good ideas, but the government and prime minister's political inability to get the reforms passed by the Knesset.
Reforms in housing are proposed at every level: planning, development, marketing, and construction (financing), as this is a matter of a production chain. Friction in any link can stymie progress in the next link. One proposal is to establish a fund for vacate and build projects.
The Ministry of Finance is worried by what it calls "the dependency ratio" -- the ratio of retirees (over 65) to the working-age population (15-64). This ratio will greatly determine how the economy will look in 50 years. The aging population, caused by longer life spans, has prompted the ministry to again proposed raising the retirement age for women from 62 to 67. The previous attempt to pass this change failed in 2012.
The Ministry of Finance also proposes to tackle the increasing proportion of Arabs and haredim (ultra-orthodox) in the population, as these two communities are characterized by low participation in the labor force, low productivity, and low incomes. The ministry emphasizes Arab women, whose participation in the labor force is especially low, by offering jobs training and placement and language acquisition.
The plan also includes investment in physical infrastructures, such as roads, expanding public transportation, the establishment of joint industrial zones with wealthy local authorities, expansion of daycare for children, and higher investment in classrooms. The Ministry of Finance intends to keep in place daycare subsidies for the lowest 1-3 socioeconomic clusters, which include almost all Arab local authorities.
As for the issue of the draft of Arabs and haredim, the Ministry of Finance recognizes that this is a political decision, but its professional position is based on two principles: it emphasizes participation in the labor force by Arabs and haredim over the draft into the IDF (which has major budgetary consequences of its own); and that solutions for the haredim are different from solutions for the Arab community, because of the fundamental differences in the two communities' characteristics.
The Ministry of Finance is also considering tighter tax collections and enforcement on the basis of recommendations by Israel Tax Authority director general Doron Arbeli.
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