OECD tells Israel to cut red tape in non-tech sectors to boost productivity

Israel needs to cut red tape in traditional industries so they can boost productivity and catch up with the country’s booming high-tech sector, the head of the Organisation for Economic Co-operation and Development (OECD) said on Sunday.

Joining Israel’s weekly cabinet meeting, OECD Secretary-General Mathias Cormann praised much of Israel’s economic progress since joining the OECD in 2010, particularly a robust technology sector, as well as its handling of the latest waves of the COVID-19 crisis without needing lockdowns.

He projected Israel’s strong economic growth would continue in 2022 but told Prime Minister Naftali Bennett the country faces structural challenges and wide socio-economic gaps due to a “two-speed economy”.

“The remarkable productivity of Israel’s vibrant high-tech sector stands in stark contrast to the lower productivity levels in more traditional lagging sectors which actually employ most of the workforce in Israel,” said Cormann, a former Australian finance minister. “This continues to lead to slower gains in aggregate productivity.”

High-tech jobs account for about 10 per cent of the labour force and the sector is highly efficient unlike manufacturing, agriculture and other traditional sectors that are subject to heavy regulations.

“So Prime Minister, the OECD’s assessment is that if Israel were to reduce its level of bureaucracy and over-regulation in some of those sectors that has accumulated throughout the years, that will certainly help boost competition, help boost performance and help lower prices moving forward,” Cormann said.

Bennett and his government have come under fire in recent weeks amid rising food and other living costs. The government last week announced a $1.3 billion plan to reduce the cost of living, including tax cuts for working families, child-care subsidies and streamlined regulation to stimulate price-cutting competition for products.

“We’ve got to reform the stagnant parts of our economy and we need to increase competition,” Bennett told Cormann. “We don’t have enough domestic competition and that’s something that’s always tough because there is always a good reason on why you need to slow down on that. And we need to have the courage to take these actions.”

Israel’s economy grew by an estimated 6.5 per cent in 2021 and is projected to grow 5.5 per cent in 2022, according to the central bank.