Israel budget plan: Boost AI, convert offices to homes, promote weed exports

Ahead of state budget approval, Finance Ministry presents structural changes that are part of economic plan for 2021-2022

Shoshanna Solomon is The Times of Israel's Startups and Business reporter

Prime Minister Naftali Bennett leads a cabinet meeting at the Prime Minister's Office in Jerusalem on June 20, 2021 (Alex Kolomoisky/POOL)
Prime Minister Naftali Bennett leads a cabinet meeting at the Prime Minister's Office in Jerusalem on June 20, 2021 (Alex Kolomoisky/POOL)

Israel’s 2021-2022 budget includes a slew of proposed structural changes and reforms, including a program to boost artificial intelligence-based technologies and permission for commercial real estate developers to convert office space into residential units, details of which were released late Wednesday night by the Finance Ministry.

Ahead of the approval of the national budget, the Finance Ministry presented to Prime Minister Naftali Bennett the main structural changes it hopes to institute as part of its economic plan for Israel for this year and next.

It will be the first budget since one was approved for 2019, which was followed by two years of political gridlock.

The program is based on three main principles: encouraging employment and investing in human capital by training and integrating sidelined populations into the workforce; boosting transportation, housing, energy and technology infrastructure; and creating the conditions to support growth in the private and public sectors by cutting back on regulation, boosting competitiveness, upgrading public services and streamlining government operations.

The proposed plan is part of the Arrangements Law that will be submitted with the budget. Finance Minister Avigdor Liberman said recently at a conference that he plans to pass the budget by November.

Among the proposals:

Lower the cost of living through easing imports by accepting international product standards, without needing additional approvals locally, and by enabling multiple parties to import products in parallel.

Increase competition in banking by passing a law requiring financial entities to transfer information about their customers, with their approval, to technology firms that can provide these customers with information about the financial services they consume, how much exactly they are paying for them and how much they could save if they switch to another financial services provider. This will help strengthen customers’ position vis-à-vis financial entities, promote the entry of advanced technological financial entities (fintech firms) into the market, increase competition in the banking system and reduce household and small business expenses in the banking system.

As far as the eye can see: the view from the Azrieli observatory
As far as the eye can see: the Tel Aviv view from the Azrieli observatory (photo: Courtesy)

Set out employment targets for the economy for 2030, and reform and set up new vocational training programs to ensure workers meet demand in the workforce.

Convert office spaces to residential units: Israel has tens of millions of square meters earmarked for office and commercial spaces that won’t be needed in the coming decades, the ministry said. In light of the need to increase housing supply and streamline the use of land, the ministry proposes to convert up to 50% of office spaces, those located near residential neighborhoods, into “micro-unit” apartments, which will add thousands of residential units to the housing supply, the statement said.

Set up a national program to promote the high-tech industry. The plan includes approving a national artificial intelligence program, to boost development of technologies in the sector; removing bureaucracy to encourage mergers and acquisitions and boost investments; improving taxation; attracting talent back to Israel from abroad; boosting the integration of Arabs into the tech sector; and enable tech firms to try out their products locally.

Illustrative image of robots and artificial intelligence (AI) (Phonlamai iStock by Getty Images)

Cutting back on regulation. Prime Minister Naftali Bennett, Finance Minister Avigdor Liberman and Justice Minister Gideon Sa’ar on Tuesday launched a national plan to lower regulation and bureaucracy. The aim of the program is to enforce “smart regulation” and do away with unnecessary and burdensome rules in order to help the economy come out of its coronavirus slump.

Promote the export of medical cannabis: Israel has a “significant advantage” over competing countries with regard to research and development, knowledge and regulation in the medical cannabis sphere. All of this can help make Israel a global leader in the field. Yet the potential in the sector has yet to be realized, and the idea is to remove existing barriers to medical exports and thus to allow cannabis producers to expand and diversify export options.

Increase the transparency of the defense budget, through greater supervision of salaries and pension payments and a team to oversee acquisition strategies, among others steps.

The health system: lower regulation, strengthen the public health system by leveling the playing field with the private health sector; and stabilize hospitals’ finances by changing how they are budgeted and setting out fines for deficits.

Reform the education system, by transferring decision making powers, teaching programs and budgets from the central government to school managers who have a proven successful track record of achievements.

Encourage the transition to clean energy by boosting green electricity generation, switching to electric transportation and increasing investment in green-infrastructure projects, including the construction of solar facilities, releasing land for renewable energy projects, and boosting storage facilities nationwide .

Illustrative image: A worker tends to cannabis plants at a growing facility for the Tikun Olam company near the northern city of Safed August 31, 2010. (Abir Sultan/Flash 90)

Public transportation: Remove restrictions to enable private entities, especially employers and municipalities, to set up private transportation systems; ease the use of ride-sharing solutions as an alternative to car ownership; increase enforcement; provide citizens with an annual report on public transportation based on indices set up by the Transportation Ministry; and set up joint public and private sector partnerships for the development of parking spaces outside urban areas.

The proposals also support a NIS 150 billion ($46 billion) metro project in the Dan regional area that will lead to NIS 26-NIS 34 billion in annual savings and will create 1250,000 new jobs, the ministry said.

Among the other proposals set out by the Finance Ministry are: promoting government digitization and offering more digitalized services to citizens; improving the prison system; creating competition for postal services; adapting fire regulations to Western world standards; and streamlining the legal system.

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