Until the Intifadah and the Oslo agreements, a non-political process of economic collaboration was leading to a gradual reconciliation between Arabs and Jews, explains ICSEP President Daniel Doron in a talk sponsored by the America-Israel Friendship League. That process can now resume, Doron argues, helped by economic reform within Israel.
A comprehensive plan to reform the Israeli economy
27 May ’03
As it has done before each election since the mid-1980s, ICSEP prepared a “100 Day Plan” for a reform of the Israeli economy before the last general election in August of 1999. The purpose of the plan, which was put together by ICSEP experts in consultation with a wide spectrum of knowledgeable and important players in the Israeli economy, was to present the new Israeli government with a blueprint for a few major steps essential for the opening of the Israeli economy and restarting growth.
The premise was that Israeli governments are politically so unstable and preoccupied with sheer political survival that they can not engage in even desperately needed comprehensive reforms, and therefore, one should only offer them a few choice steps that are doable and that can have the most major impact on the economy. Besides being submitted to the Prime Minister, the Minister of Finance, and other high government officials, the plan was also distributed to the policy community, with the intention of opening a public debate and creating support for reform.
The plan focused on two major areas: the widening deficit in the Israeli government budget, and its relationship to its structure; and the dysfunction of the Israeli financial markets that have been in dire need of reform for over a decade now. The plan was also built on the premise that it was to be treated as an addition to our former larger plan, “Obstacles in the Way of Growth and How to Remove Them”, that was far more comprehensive and treated many more areas. The fact that we still could refer to our earlier plan, which was devised before Prime Minister Netanyahu was elected in 1996, is a bitter reminder of the incapacity of Israeli governments to actually implement reforms, even when they are convinced that they are desirable and urgent, and intend to do all that is in their power to bring them about.
The major finding of our plan was that increasing budget deficits are not a function of cyclical developments, although recession is a contributing factor. Ratherr, the major problem is systemic: not the size of a deficit in a certain year, but the development trend on the side of budgetary expenses that constantly increases the deficit â€“ what is known as an automatic pilot. The study found that parallel to a dramatic shrinkage in the expenditures on national security and traditional subsidies, there was an exponential growth in transfer payments. Most of these growing transfer payments are political in nature, and have been transformed into entitlements as a result of coalition agreements between the ruling party and its partners.
An analysis of the budget expenditures shows that one cannot expect further large savings from such budget items as servicing the government debt, expenditures on health and education, and investment in public goods such as infrastructure. Namely, no shrinkage in current expenditures could finance the trend for growth in transfer payments.
As for the income side of the budget, all talk about lowering the tax burden on the population, has been just that â€“ talk. Not only is the burden high, but it is also distorted. People start paying income tax on very low incomes, and reach the high brackets very quickly. Taxes, therefore, are a negative incentive to work. At the same time, there are a large number of people who do not pay any taxes, either because they receive transfer payments, or they receive income from capital which is not taxed as far as households are concerned. So the income side of the budget does not exhibit any potential for growth, and is as distorted as the expenditure side.
Therefore, a comprehensive reform must be made in the tax system. Its base must be widened, while its application should begin at a higher level of income and rates on lower- and middle-income workers should be greatly reduced.
There is also no prospect that budget deficits can be contained unless the problem of the automatic pilot, which increases transfer payments, is boldly confronted, and at the earliest possible date, since any delay can only greatly aggravate the problem.
Other recent plans
All recent program activities
US VIP group
24 Nov ’09
Gilder/Forbes Telecosm 2009 Conference
10 Nov ’09
Tarrytown House Estate, Tarrytown, New York
“Past reforms have focused on asking for more money for education,” ICSEP President Daniel Doron noted in his speech to the Merage Forum on education.
“This despite the fact that Israel is already spending the highest proportion of GDP on education in the West.
“Yet, despite a steady growth in expenditures, standards and achievements have shown little improvement; in fact they have further deteriorated.”
25 Jun ’07
Strategic Forums Sponsored by Paul Merage
“Before I continue with my remarks, let me sound an optimistic note,” said Daniel Doron, ICSEP President, in his opening remarks to the Strategic Forums Sponsored by Paul Merage.
“You will hear voices say that attempts to reform Israel are futile, that you cannot initiate significant changes here.
“We know better.”
The high-powered conference was held to explore ways of encouraging Israeli high-tech to meet the serious challenges facing it and to continue flourishing.
“In 10 years, Israel could be one of the 10 richest countries in the world,” Finance Minister Benjamin Netanyahu told guests at ICSEP’s first annual United States Awards Dinner.
Milton Friedman expressed similar beliefs to those assembled at New York’s St Regis Hotel: “Israel has the potential of being the Hong Kong of the Middle East,” he said in his video address.
During dinner, Israel’s minister of economic affairs in America, Ron Dermer, presented the awards.
Republican Jewish Coalition
26 May ’05
“Most of you have visited Israel,” ICSEP president Daniel Doron began his address to the Republican Jewish Coalition in Washington on May 25th.
“You saw a vibrant, seemingly well-to-do country.
“You ate at posh restaurants full of prosperous Israelis, visited their impressive villas and saw their expensive cars.
“And yet, Israel, chock-full of human talent and energy, a world-class high-tech leader, seems in perpetual economic trouble.
“If the country is to survive it must reform its economic system, and do it soon.”
Read the entire speech.