According to the State of the Nation Society, Economy, and Policy in Israel report by the Taub Center for Social Policy Studies, edited by Prof. Dan Ben-David, in every sector, high housing prices are preventing an average Israeli family from making ends meet. At the same time, despite the steep rise in housing prices in recent years, the proportion of households living in housing that they do not own fell from 27.7% in 2006 to 26.5% in 2012, and the proportion of households owning two or more apartments almost quadrupled.
Construction of a residential building in Israel takes an average of 13 years: two years for construction and 11 years for bureaucracy. Approval by a District Building and Planning Commission takes an average of five years, and approval by a Local Building and Planning Commission takes an average of three years. The maximum time period needed to obtain a building permit in European Union countries is 8-12 weeks.
Much more building can be done
The researchers found a clear correlation between housing prices and the number of building starts. They said that the economy is capable of building many more housing units than at present (only 46,000 housing units were begun in 2011, the peak year for building starts in the past decade, compared with 73,000 building starts in 1995).
The report, which is basically informative, also contains occasional restrained criticism, for example, "If the waiting period for building permits in high-demand areas were shorter, current prices would likely drive construction at a much faster pace, thereby closing the gap between demand and supply and, consequently, bringing prices down. "
Fewer poor senior citizens
The report also found that the poverty rate among Israelis past retirement age was declining, compared with a rise in the incidence of poverty in the general population. Because the poverty rate among those entitled to a pension is extremely low, poverty among Arab senior citizens is persisting and increasing to an extremely high level almost 60% of them are below the poverty line, compared with 18% of immigrants from the former Soviet Union and 11% of Jewish Israelis who have lived in Israel for a long time, whose poverty rate has been falling in recent years.
The section discussing the labor market, written by Ben-David and Liora Bowers, called for reforming the market and the adoption of a number of policy guidelines for making the labor market more flexible according to the "flexicurity" model, which allows employers a relatively high degree of flexibility in employing and firing employees, while providing employees with a financial safety net and increasing their employment opportunities.
Large companies pay less tax
In the section on the shadow economy, written by Dr. Noam Gruber, the report estimates the size of the shadow economy at 20% of GDP, and alleges that the Israel Tax Authority does not set enforcement or service targets, and does not implement budgetary transparency, and apparently allocates less than 1% of its budget to enforcement. The report says that it is therefore no wonder that enforcement is lenient and limited, and does not provide deterrence.
The report adds that the tax benefits granted under the law are biased in favor of large companies. For example, of the 829 approved enterprises, the four largest companies received 60% of the benefits. The top decile of companies in revenue pays an aggregate corporate tax rate of 6.8%, less than half of the 17.6% rate paid by the bottom decile. The report alleges that the large companies exploit their bargaining power vis-a-vis the state, and pay less tax, compared with the benefits. The report also states that taxation policy is far stricter with small businesses than with large ones, and that the public is liable to consider this discrimination to constitute justification for tax evasion.
According to the report, the main causes of the shadow economy are the tax burden, the main motive for tax evasion; with the heavy bureaucratic burden; the small scale of resources devoted to detecting tax evasion, which provides no real deterrent; and the fact that the Tax Authority rarely uses severe punishment. "Faced with such light enforcement, even the self-employed and businesses that choose to file a tax report may nonetheless try to conceal income," the report concludes. All these factors lead to a situation in which the public regards tax evasion as common and legitimate, thereby increasing the probability that each individual will separately choose not to report his income. The public feels that if rich people barely pay any tax, there is no reason why others should.
This section of the report also discusses the idea of mandatory tax filing extensively, and finds that the ratio of the size of the shadow economy in countries without it is higher than the average. The report warns against over-optimism about the government's initiative to restrict and ban the use of cash, stating, "Any radical measure to significantly reduce the supply of cash would harm all who use it, for legal purposes or otherwise, and might cause economic damage and spark a public outcry. Ultimately, the outcome may be the use of cash in the form of foreign currencies as a substitute for the local currency." The report further warns, "The concern is that the regulator, the Israeli government, will be too hasty to use the stick - punitive actions against the possession of cash, which could cause more harm than good, instead of focusing on the carrot - improving the electronic money infrastructure in Israel and rewarding individuals and businesses that choose to use it."
An alarming turnaround in food prices
In its "Patterns of Expenditure on Food in Israel" section, written by Dov Chernichovsky and Eitan Regev, the report states that in 2005, most food items in Israel were cheaper than in the OECD, but became more expensive within six years, other than fruits and vegetables. Dairy products in Israel were only 6% more expensive in 1005, but by 2011 were 51% higher than the OECD average. Fish prices were 30% cheaper in 2005, but 25% more expensive in 2011.
Fruits and vegetables, which are exempt from VAT in Israel, were 40% cheaper than the OECD average in 2005, but only 15% cheaper in 2011. The report writes, "It is apparent that the substantial rise in food prices over the past few years in Israel has also had a negative effect on the composition of food consumption especially among poorer families," adding that poorer families were foregoing fruits and vegetables, dairy products and fish.
Published by Globes [online], Israel business news - www.globes-online.com - on December 17, 2014
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