Is doing business in Israel getting easier? Depends whom you ask

Amiram Barkat

Israel has moved up the World Economic Forum rankings, but has deteriorated according to the World Bank Doing Business index.

The World Economic Forum global competitiveness index for 2017-2018 published last week in Davos, Switzerland showed a significant improvement in Israel's rating. Israel was ranked in 16th place worldwide, compared with 24th place in 2016 and 27th in 2015. The index, which is similar to the World Bank's Doing Business index, assigns ratings to administrative functions relevant to the private sector. The Doing Business index, however, rates Israel in 52nd place, and appears to describe a completely different country from the one in the Davos index.

For example, in the World Economic Forum index, Israel's rating for the burden of government regulation improved impressively, from 98th place two years ago to 41st place in the 2017-2018 index. Israel was in 40th place in governmental efficiency, compared with 79th place in 2015-2016, and improved from 60th place two years ago to 29th place for transparency. It is important to note that although the identity of those questioned in the survey on which the World Economic Forum index is based is kept confidential, its general outlook is clearly included towards "right-wing" capitalism. For example, the most common criticism of Israel was for "inefficient government bureaucracy" (21.6% of those surveyed), following by tax rates (15.4%), level of employees' training (10.1%), and excessively inflexible labor laws (8.6%).

The Prime Minister's Office was unable to explain why the trend in Israel's rating in the World Bank's better-known Doing Business index was the opposite of the trend in the World Economic Forum's index. Israel latest rating in the Doing Business index was 52nd place, down from 50th place worldwide in 2016 and 40th place in 2015. The only criterion in which Israel improved in this index in 2017 was ease in opening a business, in which Israel rose from 50th to 41st place; Israel's rating in this index deteriorated in all other categories. The most prominent examples are payment of taxes (96th place worldwide) and registering a property (126th place worldwide). 

First fruits

Together with controversial measures, particularly the promotion of political appointments, Prime Minister Benjamin Netanyahu is also trying to improve regulation, and has supported measures such as a multi-year control mechanism over the budget aggregates and regulatory impact assessment (RIA) - tools designed to reduce regulation. "We're in a reasonable position in taxation," Netanyahu said last March. "Although the minister of finance and I believe that taxes must be cut, some of the heaviest tax burden that we impose on Israelis and businesses in Israel is overregulation. It's excessive regulation and paperwork."

Following Israel's advance in the World Economic Forum's competitiveness rating, the Prime Minister's Office is asserting that the policy of lessening regulation is starting to show results, and that the explanation for the meteoric rise in various components of the index lies in this policy, which has resulted in the appointment of teams for improving regulation in every ministry dealing in economic regulation. In October 2014, the government decided to institute an RIA process for all new laws and regulations other than financial regulation by agencies such as the Bank of Israel and the Capital Markets Authority. As part of that decision, a five-year (2015-2019) plan for improving regulation was established with the aim of reducing the regulatory burden on the private sector by 25%. Following poor results in the first year of activity, the policy of reducing regulation led to the repeal of laws in 2016 that the Prime Minister's Office said saved taxpayers NIS 1.3 billion.

The next stage of the plan focuses on reducing regulation, to be reflected in the upcoming Knesset session. Two new government bills will eliminate a series of regulatory requirements: the double energy efficiency rating in Israel for imported electrical appliances (which have already been rated in the country in which they were manufactured), easing of the requirements for a tour guide license (Ministry of Tourism), and elimination of the licensing requirement for businesses classed as low-risk (Ministry of the Interior) -in lieu of applying for a license, these businesses will be able to make a declaration that they meet the conditions for a license.

Published by Globes [online], Israel Business News - www.globes-online.com - on October 9, 2017

© Copyright of Globes Publisher Itonut (1983) Ltd. 2017

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