GDP, Jobs Figures End 2009 on a High

Israel ended 2009 on an optimistic note, at least on the economic front, with both growth and employment figures exceeding forecasts.

Israel's gross domestic product grew by 0.5% in 2009, beating out all earlier forecasts, according to figures released yesterday by the Central Bureau of Statistics.

The Finance Ministry, the Bank of Israel and analysts all expected much less growth, with the most optimistic forecast not exceeding 0.3%. After considering the new CBS numbers the treasury and the central bank have revised up their forecasts for 2010; they are now looking at growth of between 3.5% and 4.0% for the new year rather than 2.5%.

By contrast, the United States, Japan and Germany all saw their economies contract in 2009, recording negative GDP growth of -2.5%, -5.3% and -4.9%, respectively.

The average unemployment rate for the year was 7.7% of the workforce - again, less than the forecasts and also below the 8.2% average in OECD countries.

Per-capita GDP in Israel contracted by 1.3% in 2009 to NIS 102,500 after growing 2.2% in 2008. That's still better than the average for OECD states, where per-capita GDP shrank by 4.0% in 2009.

What does 2010 hold? According to the experts - once again, the Finance Ministry, the Bank of Israel and macroeconomic analysts - it's going to be a good year for the Israeli economy. In addition to growth of at least 3.5% we can expect a continued drop in unemployment, a rise in industrial production and an improvement in most economic indicators.

That's the good news, but of course there's some not-so-good news.

For the ordinary Yossi Israeli, 2010 will not be so great. The tax burden, already arguably one of the highest in the world, will rise even further. Services and some goods will become more expensive.

Finance Minister Yuval Steinitz apparently realized the absurdity of a situation in which the economy is booming but people have less disposable income when he announced on Wednesday a 0.5% reduction in value-added tax to 16%.

It's a tiny step in the right direction. Due to fears about the effects of the 2008 global economic crisis, VAT had been raised from 15.5% to 16.5%. Now, when it's clear that the situation is much better than expected, the finance minister can restore that rate to its pre-crisis one, but he's only gone halfway. In any event, reductions in VAT have a peculiar way of not decreasing the final price paid by the customer.

So who will be smiling this year? As usual, senior government figures, whose salaries are several times that of the average Israeli wage. Already at the start of the year, the prime minister's salary will rise by NIS 3,000 a month. Cabinet ministers will get an additional NIS 2,500 per month and Knesset members an additional NIS 5,000. Rest assured that the big guns in the private sector, who are already earning much more, will ensure that they have wage increases, too.

The rest of us, though, will lag far behind. In 2009 earning power was eroded by 4% due to inflation, and according to official figures real wages shrank by 2.6%. Inflation is expected to be between 2% and 2.5% this year, meaning that wages will continue to erode.

And what about those much-vaunted income tax cuts we've been hearing about that will increase your monthly salary? Well, don't spend it all in one place. For anyone earning up to NIS 4,000 per month before taxes, there's no benefit. Men with pretax salaries of NIS 5,000 will see an additional NIS 29 per month, while those with a gross monthly wage of NIS 10,000 will take home NIS 89 more per month. You get the picture.

The "drought tax" may have been repealed, but water rates are going up by around 25% today and are scheduled to rise by an additional 15% on July 1. Public transportation prices are also due to rise.