We took a series of important steps that finally brought us to the point where we were accepted into the OECD and which helped us survive this part of the crisis.
[translated from Hebrew]
We meet here every year to talk about Israel’s economic policies, and I intend to do so today as well. However, before I speak about the economic policies, I would like to briefly touch on a topic on the international agenda. We are consulting with several leaders within the international community regarding the appropriate framework of inquiry that will unveil all the facts relating to the Gaza flotilla. We know the truth and the people of Israel know the truth.
The Minister of Defense, Ministers, Chief of Staff and I are prepared to testify and provide the facts. But I remain firm in my position that the IDF continue to be the only organization to investigate our soldiers. This is the custom in our allies’ armies and we shall behave in a similar fashion.
But I insist that the whole truth come to light, and therefore the inquiry must also include answers to certain questions that many in the international community would rather ignore. Who is behind the radical group on the deck of the ship? Who funded its members? How did axes, clubs, knives and other types of blunt weapons find their way on to the ship? Why were extremely large sums of money found in the pockets of those people on the deck of the ship? Who was this money intended for? The world needs to know the full picture and we will ensure that the full picture is made public.
You gathered here to get the full picture of our economy. The last time we met here, it was at the height of the crisis and I said we would do certain things. You can form your own opinion whether or not we did them. Israel apparently survived the crisis, and I qualify my statement with "apparently" because the crisis is not yet behind us. It is true that we are ranked among the top countries in the world in terms of surviving the crisis, but the crisis is still ongoing. It is still ongoing because there is a shockwave, an aftershock, and we have yet to see the end. We are witnessing this in Europe, and it radiates from there to other places. We have joined the OECD, which was a very thrilling moment and is the culmination of a great number of steps we have taken over the years. However, it is by no means the end.
I must say something that always seemed so obvious, but is not obvious when one is discussing economic policy. If I were to say to the company owners and market leaders who are here tonight that they could stop competing – let’s say they made certain changes, or even improved their companies and that put an end to competition. You would look at me askance. You would say: "Competition never ends. We must always improve; we can’t just stand still. If you stand still, you’re actually taking a step backwards." The exact same thing is true with regard to national economies, and even more so when it comes to global economies. Competition never ends. Reforms never end.
We took a series of important steps that finally brought us to the point where we were accepted into the OECD and which helped us survive this part of the crisis. We have survived so far by adopting a very clear policy, starting in the early 1990’s when we opened the economy to imports; at the end of the 1990’s, when we removed the limits on foreign currency; and in 2003, when we exercised budgetary discipline and reduced the tax burden, freed up the labor market and reduced allowances and enacted other changes. We made changes in the pension system and we also reduced the concentration of power in the capital market through reforms. There are other changes, but I am touching on the primary changes we made, and they were very helpful in the long run. However, we must continue with the same clear policy that has increased the competitiveness of the Israeli economy.
In order to increase our competitiveness now, we must increase the competitiveness of the prime engine of added value in the economy – the private sector. This competitiveness rests on budgetary restraint and the easing of bureaucracy and other obstacles to competition. There are several serious obstacles that we have yet to deal with. We must also upgrade our economic infrastructure, both human and physical. The State of Israel is certainly behind when it comes to physical infrastructure and may even reach a stage where it is moving backwards rather than forwards with regard to human infrastructure. That is why we have focused on five things since the government’s inception.
Firstly, we focused on stabilizing the economy during the crisis, and as I said, we cannot yet say with certainty that the crisis is behind us. Secondly, we freed up land in Israel: one of our problems is that we are trapped inside a small country with even more limited land and you are all familiar with the results – and they include difficulty in developing and building apartments and other structures in Israel. We passed the reform of the Israel Land Administration. If I’m not mistaken, I told you at last year’s conference that we would pass the reform, and we did. We are currently working on the reform of planning and construction. The third thing we are focusing on is laying out a network of transportation infrastructure in Israel – trains and highways. We must break through, and are breaking through, the narrow axis between Hadera and Gedera in the center of the country, thereby opening up the Galilee and the Negev. In our small country, it is very difficult to travel from the North to the center and from the center to the Negev and back. We have allocated NIS 27 billion, nearly NIS 30 billion, to a multi-year plan that will generate a transportation revolution in the State of Israel. In my opinion, it is more than just a transportation revolution – it is an economic and social revolution as well. It involves bringing the peripheral areas closer to the center of the country – in fact eliminating large portions of the periphery – and it will change the face of the country. The fourth thing we’re focused on is the continued reduction of taxes. I believe this is an important step, and the fact is that we are working methodically and fundamentally to reduce the tax burden – company taxes have been reduced and will continue to decrease, as has income tax for individuals. It is true that income tax has not been reduced over the past year, but it will be further reduced. This helps create economic worthwhileness. And we still have not arrived at the point where a reduction in tax rates will necessarily reduce the scope of our tax revenues.
We must discuss two further issues.
The first is: we must reduce centralization in the economy – any kind of centralization, whether governmental; or in the Workers’ Federation like in the past; or in the private sector. Too much centralization harms competition, and our goal is to increase competition. Let me be clear: I am not opposed to the wealthy; I am not opposed to profits; but I do want the profits to be attained through competition. Competition is essential to propelling the Israeli economy forward, and therefore we are currently examining the issue of separating real holdings from financial holdings and strengthening the tools available to the authorities for business restrictions. Business restrictions usually work horizontally in a specific industry. It is very difficult to treat horizontal centralization, but we are examining how we could do so responsibly and carefully. We are aware of all the considerations; we are examining the matter seriously and with deliberation. Introducing best practices to finance companies traded on the stock market also strengthens governmental corporations. There are things we can learn from overseas and there are things we will learn not to do from overseas – and we are examining this too with all due seriousness.
I mentioned issues related to limiting competition and to upgrading physical infrastructure in Israel, but of course another critical goal to the continued prosperity of the State of Israel and the continued flourishing of its economy is upgrading our human capital. This is a central factor in ensuring long-term growth. We will approach this issue from several directions. First, through the elementary school system and education in high schools – we are examining new methods of increasing the use of computers and telecommunications in classrooms. It is not a miracle solution, and one must know how to utilize it. But there is also truth to the saying that not much has changed in the education system since the days of the Second Temple. The Jewish people introduced the idea of school and universal education: there was a teacher that stood in front of students – then it was usually a man, but today teachers are usually women. The teacher stands in front of the students and tries to explain things to them, but today there are other tools that can be provided in a planned fashion, and they capture the children’s interest and help students that sometimes find their attention wandering. They help increase the children’s achievement level and help those children who are weaker students. They help involve them in the lesson and provide them with knowledge. I have seen incredible examples of this. Again, we are looking into the matter, and will certainly want to examine the application of such tools before we introduce them across the country. In any event, Israel is a technological force on a global scale, and I think it only natural that we utilize certain abilities that exist here in order to upgrade our education system. By the way, this could also serve as the basis for an industry that has relevance for the entire world since the entire world is facing these same problems.
Therefore, upgrading elementary and high school education is crucial. Upgrading higher education is just as crucial. We are currently working in conjunction with the Higher Education Council and the Student Union on this matter. We want to reach consensus regarding structural changes in the universities. Again, this is no small matter. It is something many people around the world are grappling with, and we believe there is growing recognition of this issue. I can promise you that my government recognizes it – the Minister of Education, Emanuel Trajtenberg, my economic advisers, the Director General of the Prime Minister’s Office who is here today, Eyal Gabbai – we all recognize that we must help our universities reinvigorate themselves. The government also allocated a hefty sum to centers of excellence and innovation within the universities, to help them absorb returning Israeli scientists and engineers and to bring them back to Israel. We understand that this is a necessary component to the growth and development of Israel’s economy.
The two-year budget we are about to present to the Knesset is characterized by its budgetary discipline, a continued investment in infrastructure, structural reforms and a continued reduction in taxes. My friends, I cannot tell you that what we are doing will ensure that there will not be a further upset in the global economy. Such an upset would affect Israel’s economy as well. But much as we succeeded to survive the crisis and improve our international standing and rating due to our very clear policy over the past several years – over the past decade certainly, and even before that with certain changes that took on a life of their own – if we continue to maintain this policy very clearly, I believe Israel’s economy will survive the ongoing crisis. If we act as we should, our economy will emerge stronger, more competitive and more prosperous – and become one of the leading 15 economies of the world in terms of per capita income. It is not impossible. I’ll say it a bit differently: it is possible. Moreover, if we exercise this policy – which is the right policy – it is a goal that we will meet.