social protest, housing, regulation
TRANSCRIPT
Social Protest, Housing, Regulation, and more…
Dr. Michael Sarel, Head of Kohelet Economics Forum
December 2014
Compared with the US, the Euro area and the OECD, the prices in Israel in most consumption sections, are not very high (as of 2011)
129
120 119
109
103 103 99 97 94
60
80
100
120
140
160
Communication (22)Transport (20)Food and non-alcoholicbeverages (3)
Clothing and footwear(16)
Household furnishings,equipment and
maintenance (18)
Miscellaneous goods andservices (26)
Housing, water,electricity, gas and other
fuels (17)
Health (19)Education (24)
Israel
United States
Euro area (17 countries)
OECD - Total
Source: OECD, 2011
Standard of living
In the food section, Israel is expensive in all categories except for one
116
84
103
60
80
100
120
140
160
Non-alcoholicbeverages (12)
Milk, cheese andeggs (8)
Oils and fats (9)Alcoholicbeverages (14)
Other food (11)Bread andcereals (5)
Fish (7)Meat (6)Food and non-alcoholic
beverages (3)
Food (4)Alcoholicbeverages,
tobacco andnarcotics (13)
Fruits,vegetables,
potatoes (10)
Israel
United States
Euro area (17 countries)
OECD - Total
Source: OECD, 2011
Standard of living
10.3%
9.7%
8.7%
7.4%
8.9%
8.0%
7.0% 6.9%
6.2%
6.6% 6.7% 6.6%
6.8% 6.6% 6.6%
6.1% 6.0% 5.9% 5.8%
5.6%
5.9% 5.9% 5.8% 5.8% 5.8% 6.0%
6.5%
6.2% 6.3% 6.3%
5.7%
58%
59%
60%
61%
62%
63%
64%
65%
66%
5%
6%
7%
8%
9%
10%
11%
12%
13%
5
Unemployment and Participation rates Ages 15+
Source: CBS
Participation rates (RHS)
Israel, as percent of weighted average
of G-8 advanced economies, 1995-2011
50%
60%
70%
80%
90%
100%income per person
productivity per person
productivity per worker
productivity per hour worked
Source: PWT 8.0 database, Michael Sarel’s calculations 7
Competitiveness (e.g. where can the next improvements in productivity come from?)
0
20
40
60
80
100
120
140
160
180
0
10
20
30
40
50
60
70Rank in “doing Business” measures, Israel & high-income OECD countries
(lower numbers indicate a better rank)
Ease of Doing Business Rank (lef axis)
Getting Credit
Paying Taxes
Protecting Minority Investors
Enforcing Contracts
0.46
0.54
0.49
0.34
0.39 0.38
0.36
0.2
0.25
0.3
0.35
0.4
0.45
0.5
0.55
0.6
9
Gini index for inequality* 1988-2010
Source: National Insurance Institute of Israel, CBS
*Concatenated series which correct for changes to the settings and definitions, except the data for 2012.
Economic income inequality
Net income inequality
69.7%
59.7%
50.3%
20.3% 23.0%
23.1%
9.9%
17.2%
26.6%
0%
10%
20%
30%
40%
50%
60%
70%
80%
2009 2034 2059
Ultra-Orthodox Jews
Arabs
Jews, excluding Ultra-Othodox
Macroeconomic background
Adverse Demographic Dynamics Unprecedented demographic changes, expected to occur in the coming decades, pose complicated challenges.
0
1
2
3
4
5
6
7
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
11
Budget Deficit Targets (as percent of GDP)
Targets 2009
Targets 2013 Targets 2014
12
Prosperity-Promoting Policies
Market-friendly vs. government-controlled economy
Flexible labor markets vs. excessive regulation and “workers’ rights”
Professional, long-term considerations vs. political, populist, short-term approach
The role of public education
80
90
100
110
120
130
140
150
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Figure 1. Real Apartment Prices (In terms of the Consumer Price Index, excluding housing)
Index (1994 = 100); data refer to January of each year
10.9
11.7
12.0 12.0
12.4
12.8
13.0
13.1
9
10
11
12
13
14
2006 2007 2008 2009 2010 2011 2012 2013
Figure 2. Per capita housing services share of GDP (in thousands of shekels per capita, chained data, 2010 prices)
80
85
90
95
100
105
110
115
120
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Figure 4. The ratio between apartment prices (the value of
the property) and rental prices (the value of housing
services) Index (1999 = 100); data refer to January of each year
68.8
84.1
78.7 79.1 78.4
73.8
69.8 68.6
63.1
54.1
38.6
0
10
20
30
40
50
60
70
80
90
All
households
10st decile 9st decile 8st decile 7st decile 6st decile 5st decile 4st decile 3st decile 2st decile 1st decile
Figure 5. Percentage of households living in own
apartments
974
2,035
1,406
1,233
1,090
947
815 774
618
497
331
0
500
1000
1500
2000
2500
All
households
10st decile 9st decile 8st decile 7st decile 6st decile 5st decile 4st decile 3st decile 2st decile 1st decile
Figure 7. Value of an owned apartment (in thousands of
shekels)
– the average for all households in each decile
The 0% VAT proposed policy
From a political economy perspective – almost impossible to terminate it in the
future
Imposes a huge fiscal cost – at least 50 billion NIS in the first 20 years
There is no such thing as a free lunch – the plan will necessarily result in higher
tax rates and/or lower level of public services higher burden on the population
Creates new distortions in the tax system high probability of additional VAT
exemptions higher tax rates negative impact on growth
Requires a cumbersome and expensive system of price controls
Even with such a system, some (or even most) of the benefit will go to
homebuilders
The rest of the benefit will go to high-income households
In the department of economy, an act, a habit, an institution, a law, gives birth
not only to an effect, but to a series of effects. Of these effects, the first only is immediate; it manifests itself simultaneously with its cause - it is seen. The others
unfold in succession - they are not seen: it is well for us, if they are foreseen.
Between a good and a bad economist this constitutes the whole difference - the
one takes account of the visible effect; the other takes account both of the effects which are seen, and also of those which it is necessary to foresee. Now
this difference is enormous, for it almost always happens that when the
immediate consequence is favourable, the ultimate consequences are fatal,
and the converse. Hence it follows that the bad economist pursues a small present good, which will be followed by a great evil to come, while the true
economist pursues a great good to come, - at the risk of a small present evil.
That Which is Seen, and That Which is Not Seen Frederic Bastiat, 1850
The zero-VAT plan is not intended for economists
Yair Lapid, 2014