Benjamin Netanyahu’s period as prime minister was the longest in Israel’s short history. It began in 2009, after the subprime crisis, when the Israeli economy was enjoying a favorable global environment, and after which the economy grew faster than those of other developed countries. Gas reservoirs discovered off Israel’s coast have sparked optimism about the future.
Without the coronavirus pandemic, it could have been said that Netanyahu was returning another country to the one he took over twelve years ago. Some of the economic measures examined in this article point to great achievements: over the past decade wages have increased in real terms, as has GDP per capita, unemployment has reached record levels, and the public debt-to-GDP ratio has risen. also historically low, so the economy faced the coronavirus crisis in a good position, which helped mitigate the damage.
On one issue, however, house prices, Netanyahu completely failed. And there are other question marks: according to the OECD, Israel after the Netanyahu era needs far-reaching reforms in transport, infrastructure, energy, education and the promotion of productivity. These will be problems for Netanyahu’s successor. For the economy to grow faster, longer-term thinking is needed on how to finance reforms and increase labor productivity in Israel.
The question is, what are the expectations? Does Israel aspire to be a top genius, or the average kid having fun?
Debt: a decade of achievement, then came the pandemic
The national debt at the end of Netanyahu’s tenure is similar to what it was at the start. This is entirely due to the coronavirus pandemic, which in just one year wiped out Netanyahu’s achievements in debt reduction. In retrospect, thanks to strict fiscal discipline, the public debt fell from 91.3% of GDP when Netanyahu was finance minister in 2003 to 71% in 2008. The Bank of Israel says the cut in the rate of effective interest on public debt, combined with rapid nominal GDP growth since 2010, have contributed to a continued decline in the debt-to-GDP ratio, but their cumulative effect between 2010 and 2019 only explains half of the decline of the ratio.
The remainder of the decline in the debt-to-GDP ratio is mainly due to extra-budgetary capital inflows, the mark-to-market of foreign currency debt and the slowdown in inflation. On the eve of the coronavirus pandemic, the debt-to-GDP ratio had fallen to 60%. But the measures needed to help the economy cope with the crisis raised the ratio to 73%, erasing a decade of decline. According to the Bank of Israel, the government’s ability to implement an expansionary fiscal policy without running the risk of a debt crisis has increased since 2003, thanks to the reduction in the ratio. This has made it possible to better cope with the economic effects of the coronavirus pandemic and the need to increase public investment in infrastructure to close the gap with developed countries. The main problem is the structural deficit, the reduction of which will require a credible multi-year plan.
Salary: A sharp increase, but it’s complicated
What happened to wages under Netanyahu? Since 2010, real wages in Israel have been on the rise, a trend that intensified after 2015, and, in total, wages in real terms, adjusted for inflation, increased by 26% during his tenure.
The real wage increase was made possible by several factors, including a high growth rate, the sharp increase in the minimum wage, a low unemployment rate and low inflation, which kept the real rate of increase at a low level. high level.
The growth in wages has occurred in both the private and public sectors. Between 2010 and 2019, wages in the private sector increased by an average of 2.2% per year. The peak came in 2015-18, when real wages increased at an annual rate of 3%. But there is a catch. The average rise in real wages does not reflect those left behind and is heavily influenced by the increase in the number of workers in the tech industry, which has driven the numbers up. In April, the salary of a tech worker was 2.3 times the national average.
In 2020, low-wage people were the hardest hit by the coronavirus pandemic and were laid off in large numbers, leading to a sharp technical increase in the average wage.
Low unemployment rate, but holidays spoil the picture
Netanyahu’s political measures as finance minister, which included a cut in family allowances, a cut in the income supplement, a negative income tax and raising the retirement age, have contributed to the labor market. and reducing unemployment to minimal levels.
Netanyahu’s anti-social policies as finance minister have also resulted in a significant increase in employment among Arabs and Haredim (ultra-Orthodox Jews). What has helped the unemployment rate to drop is the changing numbers of Haredi men and Arab women, groups characterized by low labor market participation and a lack of skills suited to the current labor market.
The increase in employment is also attributable to the technology sector. Although the sector employs only 10% of the workforce, its expansion has an effect on other sectors.
Despite the consequences of the coronavirus pandemic, according to the Central Bureau of Statistics, the narrow measure of unemployment (the number of people unemployed as a proportion of the working population) fell to 5% in May of this year. But what about workers put on unpaid leave and workers whose workplaces have closed? The Central Bureau of Statistics excludes them from the standard measure, but there are 130,000 unemployed people. Labor market experts believe that as soon as they start actively looking for work, at the end of the period of unpaid leave, this will lead to an increase in the unemployment rate.
Housing: a resounding failure
“I told you to buy houses – buy houses. Not just in Beersheva. Buy houses in Dimona, in Yeruham, buy houses. There are those who have listened and acted, and there are those who do not. have not. ” This recommendation from Netanyahu in 2016 still holds true, unfortunately for young couples.
There is no doubt that Netanyahu’s great economic failure during his second term as prime minister was his inability, despite all the plethora of programs he introduced, to stop the skyrocketing cost. housing. The failure to close the gap between the homes put on the market and the demand has led to a doubling of house prices over the past decade.
A Bank of Israel study released last week also shows that housing is overvalued due to insufficient supply, and that monetary policy (very low interest rates) is only a secondary factor in the price increase. According to the IDC Herzliya Aaron Institute for Economic Policy, the supply of housing under construction and the housing stock are the most important variables that determine prices in the housing market.
The gap between supply and demand has narrowed in recent years. However, according to the analysis of Bank Leumi, the basic demand for housing is 55,000 per year, while construction is at the rate of 50,000 housing per year. However, the delay of completed constructions in relation to demand indicates that prices will continue to rise.
GDP per capita: up sharply, but the gap with the OECD remains
Economic growth rates at the start of Netanyahu’s second term were high. But to come closer to the standard of living of developed Western countries, the per capita GDP of the Israeli economy had to grow faster. In March 2009, at the start of Netanyahu’s second term, the annual GDP per capita in Israel was $ 27,512. In 2020, it hit $ 40,731. That’s a pretty impressive increase, but the gap compared to other OECD countries has not narrowed, as Israel’s annual population growth rate is significantly higher than the average for these countries ( 2% against 0.55).
Excluding the year of the coronavirus, exceptional in all respects, in Israel and the world, GDP per capita in Israel grew on average by 1.5% per year, compared with 1.2% in the United States and 0.9% in Germany. Our situation is less impressive compared to countries like Taiwan, Singapore and South Korea, where the growth rate of GDP per capita was 3%.
So GDP per capita has grown significantly under Netanyahu, but the question is, who should we compare ourselves to? Which brings us back to the kind of student we want to be – the most upscale genius, or the average kid having fun.
Posted by Globes, Israel business news – en.globes.co.il – on June 15, 2021
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