OECD report cites ‘high’ cost of living, inequality in Israel

Israel suffers from a high cost of living, high inequality, low productivity and a slew of other economic problems that it should address urgently, the Organization for Economic Cooperation and Development urged in a report released Sunday.

Titled “Economic Survey of Israel” 2016, the study analyzed the current state of the Israeli economy in detail and came to similar conclusions as previous reports, namely that “the economy has strong fundamentals, but productivity performance has been weak, income inequality and poverty are high, and the fiscal framework is not conducive to inclusive growth.”

Additionally, “improving productivity and raising living standards will require strengthening competition and efficiency in the domestic economy,” the report said.

In response to the report, Finance Minister Moshe Kahlon said in a statement that the government “is working on fixing almost all of the problems mentioned.” He cited several examples, such as appointing a task force on housing and promoting competition among banks and importers.

“The high cost of living mentioned in the report, from which we suffer — we are bringing the ‘cornflakes reforms’ [an initiative to lower food costs], reforms in transportation and the ports, which pave the way for further reforms, and we are opening up the market to parallel import of products.”

The report was released to coincide with an official visit to Israel by Angel Gurria, secretary general of the OECD, who arrived on Sunday to mark the fifth anniversary of Israel’s accession to the organization. He is also expected to present another report over the coming days, entitled “Assessing Well Being in Israel.”

“These two reports together provide Israel with a snapshot of the state of its economy and societal well-being,” Gurría told media. “Growth rates have exceeded those in most other OECD countries for more than a decade; employment is rising; inflation is low; and the public finances are in relatively good shape; but, there is homework to do if everyone in Israeli society is to benefit from this strong growth.”

According to a statement about the report, “while Israel performs well and is among the best in the OECD in terms of life satisfaction, health status and educational attainment, it has poor outcomes compared to OECD averages in areas such as poverty, housing and air quality. Additionally, Israel has a high level of inequality, with the Israeli Arab and [ultra-Orthodox] populations experiencing higher than average rates of poverty, and lower levels of labor force participation and educational attainment than is the case for secular Jews. This contributes to overall levels of human capital in Israel which are significantly below the OECD average.”

The report also singled out a lack of competition as one of the main factors of the high cost of living in Israel, particularly in the food market. Significant criticism was also directed toward Israel’s banking sector as well as its electricity market.

In an OECD report released in May, Israel was ranked second only to the United States among developed nations in terms of income inequality.

According to the report, in Israel the richest 10 percent earn 15 times more than the poorest 10%, a much larger gap than average between haves and have-nots among OECD nations, which is 9.6 times.

The average income of the top 10% in the US was 19 times higher than that of the bottom 10% in 2013. The US figure rose from just 11 times higher 30 years ago, the OECD says.

Times of Israel staff contributed to this report.