The Israeli Economy
January 2012
Ministry of Finance
Main Economic Indicators
Main Economic Indicators
 Strong and sustainable GDP growth
 Labor market
 Moderate levels of inflation
 Eight years of consecutive surplus in the current account
GDP Growth
Percentage Per Annum
9.0%
7.0%
5.7%
5.0%
5.0%
5.4%
4.9%
4.8%
4.8%
4.2%
3.2%
3.0%
1.6%
1.0%
-1.0%
*Budget Estimate was 4.0%
Source: Central Bureau of Statistics, Ministry of finance
0.8%
Unemployment and Participation Rates
Unemployment rate
(left axis)
12%
60%
Participation rate
(right axis)
10.8%
10.3%
10.3%
10%
9.3%
8.9%
8%
8.7%
59%
58%
9.0%
57.3%
57%
8.4%
56%
7.6%
7.3%
55%
6.6%
6.1%
6.0%
6%
5.5% 5.6%
54%
53%
11
Q
20 1
11
Q
20 2
11
Q
3
52%
20
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
4%
Source: CBS
Inflation is Under Control
Central Bank’s Key Interest Rate
Year-End Inflation Rate
10
10
8
8
6.5
6
4
3.4
0
1.4
2.2
4
1.2
0
Today = 2.75%
-0.1
-2
6
3.9
2.7
2.4
2
3.8
2
-1.9
Source: Bank of Israel
6
1/
11
1/
10
1/
09
1/
08
1/
07
1/
06
1/
05
1/
03
-4
1/
04
0
Balance of Payments - The Current Account
US$ Billions & As Percent of GDP
10.0
10%
8.0
8%
Percent of GDP
6.0
6%
3.5%
5.2%
4.0
4%
3.0%
3.4%
2%
2.0
1.2%
0.0
-0.7%
-2.0
\
1.6%
2.4%
0.4%
1.1%
0%
-1.0% -0.6%
-2%
-4.0
-4%
-6.0
-6%
2000
2001
2002
2003
2004
Source: CBS. * First three quarters annualized
2005
2006
2007
2008
2009
2010
2011*
Fiscal Policy
The New Fiscal Rule
 Expenditure growth is derived from two elements:
 Distance from debt target
 Permanent long term growth
Average Growth Rate of 10 Years
60%
*Debt/GDP ratio =Expenditure growth rate
 No change in the deficit ceiling
2009
2010
2011
2012
2013
2014
onwards
6.0%
5.5%
3.0%
2.0%
 One always functions as the effective limitation
1.5%
1.0%
General Government Expenditure
As a percentage of the GDP
60
55
50.8
50
50.1
47.3
45.3
45
44.7
43.0
43.0
42.6
42.3
2008
2009
2010
2011
43.6
40
35
30
2007
2006
2005
2004
2003
2002
Source: CBS, The Ministry of Finance
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General Government Expenditure
As a percentage of the GDP, International comparison 2010
65
60
55
50
59
57
55
53 53 53
52 51 51
51 50 50 50
50
45
40
35
* Weighted average; Source: OECD
48
46 46 45
45 44 44
43 43 43 43
41 40 40
37 36
34
31
30
25
Tax Burden of the General Government
2009 % of GDP
Source: OECD, Ministry of Finance
Public Debt
As a percentage of the GDP
110%
100%
99.2%
96.6%
97.4%
93.8%
90%
84.3%
77.8%
80%
77.1%
79.3%
76.3%
74.0%
70%
60%
2011*
2010
2009
2008
2007
2006
2005
2004
Source: The Ministry of Finance
2003
2002
*Estimated Figures for 2011
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Public Debt Increase
Between the years 2007-2010
As a Percentage of the GDP , International comparison
200
180
2010
2007
160
140
120
100
Source: OECD Outlook 90, Israel 2010 - MOF
Maastricht: 60% Debt
80
60
40
20
0
Central Government's Budget Deficit
As a Percentage of the GDP, actual and according to the scheme
7
Budget law
Actual
6.0
6
5.5
5.2
5.2
5
4
3.9
Latest Forecast
4.0
3.5
3.5
3.7
3.4
3.0
3.0
3.0
2.9
3
2.2
1.8
2
3.4
3.3
2.0
1.6
1.5
1.0
0.9
1
0.0
0
*2014
*2013
2012
2011
2010
* According to the Deficit Reduction and Budgetary Expenditure Limitation law 1992
Source: CBS, the Ministry of Finance
2009
2008**
2007
2006
2005
2004
2003
2002
** Fiscal rule limitation was 3% in 2008
Key Economic Policies
 Fiscal Responsibility – According to the Fiscal Rule
 Encouraging Growth by:
 Structural Reforms - Advancing Competitiveness
 Active Labor Market Policies
 Reducing Bureaucracy
 Automatic Stabilizers
Committee for Social and Economic Reform
(Trachtenberg Committee)
 Tax policy
 Cost of living and competitive markets
 Priority changes within the expenditure limitation
 Housing and real-estate market
Tax policy
Legislation has been completed
 Cancelling the direct tax reduction scheme (Individual and Corporate)
 Raising maximum marginal tax from 44% to 48%
 Lowering income tax for incomes between 8-14 thousand NIS a month
(from 23% to 21%)
 Raising corporate tax from 23% to 25%
 Raising capital gains tax from 20% to 25%
 VAT will remain 16%
 Reducing duty free cigarette allowance
 Introducing Tax allowance for fathers
 Cancelling the rise in fuel taxes
 Increasing negative income tax for women