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Israel could gain from increased competition, public spending, OECD says

Separately, new OECD report on regulation in Israel says situation has improved, but more needs to be done

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

Train tracks and the Ayalon highway in central Tel Aviv, with the Azrieli Towers as a backdrop, December 18, 2017. (Miriam Alster/Flash90)
Train tracks and the Ayalon highway in central Tel Aviv, with the Azrieli Towers as a backdrop, December 18, 2017. (Miriam Alster/Flash90)

Israel is one of the countries that could most gain from further liberalization and greater competition in its economy, with its gross domestic product per capita potentially rising by as much as 20 percent by 2060 should greater economic openness be in place, a new report by the OECD said.

The countries with the most to gain from liberalizing market reforms, including Turkey, Israel, Korea, Slovenia and Mexico, “are those currently furthest away” from the countries that have the most liberalized economies, the report said.

Another area that would most benefit Israel would be increased public expenditure, which could help raise the standard of living in Israel more than 7% by 2060, the report said.

Titled “The Long View: Scenarios for the World Economy to 2060,” the OECD economic paper studies long-term scenarios in the global economy.

Economic growth in the world is expected to decelerate over the next four decades, driven by slowing growth in the large emerging market economies — Brazil, Russia, India, Indonesia, China and South Africa (BRIICS), the OECD economic policy paper said. Even so, the growth in these countries is set to remain well above that of the OECD area.

The share of OECD output in world output, which has already fallen from 72% in 2000 to just below 54% now, is seen declining to 43% by 2060.  China’s share of world output is set to peak during the 2030s at about 27% and decline slowly thereafter, while India’s share will keep rising, the report said.

Curbs on global trade would depress living standards globally, the report said.

“Slipping back on trade liberalization — returning to 1990 average tariff rates — depresses long-run living standards by 14% for the world as a whole and as much as 15-25% in the most affected countries,” the report said.

Separately, another report by the OECD, commissioned by Israel and presented on Sunday to the government, says that the nation has made progress in cutting back on the regulatory burden imposed on businesses, but Israeli ministries continue to be “very risk-averse,” preferring a regime of strict regulation.

The report was presented by the head of the OECD’s regulatory policy division, Nick Malyshev.

The Israeli government in 2014 set out reforms, implemented in 2016, with the aim of creating balanced and smart regulation by reducing the existing regulatory burden, introducing regulatory impact analysis (RIA) into the process for developing and amending regulations, and creating an organizational infrastructure to achieve these aims.

“Israel should continue its efforts to develop its regulatory policy,” the report said. The reforms initiated in 2014 “represent good starting points for a whole-of-government policy.”

“The Government of Israel has taken extensive steps since the publication of the OECD Regulatory Policy Outlook in 2015, when Israel scored relatively poorly in RIA, stakeholder engagement and ex post evaluation compared to its OECD peers,” the report said. “But now, Israel is on a good track towards improving its scores.”

The levels of awareness and the political commitment to cutting regulation are higher, along with awareness regarding the matter, the report’s authors said.

Even so, large parts of the economy remain uncompetitive, suffering from comparatively high tariffs and non-tariff barriers; bureaucracy remains cumbersome; and administrative procedures for doing business in Israel “were reported to be unclear, overlapping, burdensome and not user-centered.”

Many times, there are “too many authorities” involved in attaining regulatory permits “resulting in inconsistencies between requirements and practices” that also stems from “sub-optimal coordination” between levels of government and among inspection authorities. This “makes it difficult to have a clear, transparent overview of roles, responsibilities, accountability chains, actual activities and spending records,” the report said.

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