Analysis |

Israel's Economy Needs New Ideas, but the Treasury Keeps Offering Same Old Ones

Proposed legislation is grab bag of reforms from the past, irrelevant to coronavirus-hit economy

Avi Waksman
Avi Waksman
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A man is seen walking through a closed Carmel Market during a lockdown, May 5, 2020.
A man is seen walking through a closed Carmel Market during a lockdown, May 5, 2020.Credit: Moti Milrod
Avi Waksman
Avi Waksman

The coronavirus has wreaked havoc on the Israeli and world economies, but its impact on the Finance Ministry’s proposed Arrangements Law seems about nil.

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The legislation, which contains a host of reform measures accompanying the budget, in the main is made up of steps proposed but never approved from years past, ones that don’t have any direct bearing on the widespread unemployment and massive fiscal deficit now bearing down on Israel.

Treasury officials say the proposed Arrangements Law reform targets opening the Israeli economy up to more import competition, including financial services; increasing the size of the workforce and improving labor productivity; imposing efficiency measures on the civil service; and upgrading the country’s physical infrastructure with increased investment.

Most of the reforms, which were prepared by the treasury staff and will go to the cabinet shortly for deliberations, have already won the backing of Finance Minister Yisrael Katz and Prime Minister Benjamin Netanyahu. The Justice Ministry is now dealing with the issue of whether the law can be fast-tracked through the Knesset.

The so-called “cornflakes law,” which was passed as part of the Arrangements Law in the 2015-16 budget, was aimed at creating more competition by easing regulatory requirements on dry food, which present fewer health issues.

A meeting of the Knesset Finance Committee, June 22, 2020.
A meeting of the Knesset Finance Committee, June 22, 2020.Credit: Adina Wallman / Knesset spokesperson

Now treasury officials want to extend the liberalization to other food categories regarded as more sensitive from a health perspective, including imported milk, meat, fish, eggs, baby food and food supplements. These present complicated issues for policy-makers as they need approvals and quality checks before they can be sold, and that raises their cost to the consumer.

The reforms call for creating a “green stamp” for importers that meet certain criteria. Those that meet them can get their products to store shelves more quickly by placing more of the responsibility for the quality on the importers themselves rather than the government. Some categories, such as mineral water, will no longer be deemed “sensitive” altogether.

Critically, however, the legislation doesn’t plan to include any changes in the powers of the Chief Rabbinate regarding the kashrut of imported food. Its monopoly of kashrut supervision has been one of the main reasons that the cornflakes law has only been partially successful.

One of the chief reasons why prices in Israel for imported products such as shampoo, deodorant and toothpaste are so high compared to other countries is heavy government regulation. Companies not designated by these products manufacturers as their official agents in Israel are now allowed to import these products, too, by sourcing them from third parties. But these so-called parallel imports run into problems because the importers get little or no cooperation from manufacturers, who favor official importers.

In recent years, the treasury has sought to make it easier for parallel imports of cosmetics and toiletries, but opposition from the Health Ministry toward products it regards as sensitive for health reasons has blocked the reforms.

Now, said treasury officials, following lengthy discussions with their Health Ministry peers, they are ready to introduce reforms they say will lead to much lower prices for the consumer. Similar to the cornflakes reform, the model relies on importers conducting their own product checks.

Another area that Finance Ministry officials have sought for years to change is new-business registrations. The reforms in the draft Arrangements Law would provide business owners with a final, detailed list of requirements they need to register different categories of new businesses. To date, for most kinds of businesses, no such list exists, leaving business owners in a fog.

The law will form a committee that will force the relevant ministries, as well as bodies such as police and firefighters, to move quickly toward making public their requirements for new businesses in detail. If any of these government bodies delays or disputes on the rules that emerge between them, the committee will have the power to set the rules itself. It will also have the power to ensure that regulators don’t impose unofficial requirements not on the list.

To help create more regulatory certainty, the treasury wants all the regulations and approvals for businesses under the aegis of the Environmental Affairs Ministry to be consolidated into a single, one-stop service, as is done in most of the countries belonging to the Organization for Economic Cooperation and Development.

Dr Karina Glick checks a medical ventilator control panel at a ward at Samson Assuta Ashdod University Hospital in the southern Israeli city of Ashdod, March 16, 2020.
Dr Karina Glick checks a medical ventilator control panel at a ward at Samson Assuta Ashdod University Hospital in the southern Israeli city of Ashdod, March 16, 2020.Credit: AFP

In health care, the proposed Arrangements Laws aims to significantly increase the number of doctors in Israel. That comes after a small decline in the number of doctors in recent years, which will eventually turn into a more severe shortage if nothing is done to reverse the trend. Israeli doctors are on average the oldest in the West and are heading in large numbers into their retirement years.

One way the treasury hopes to increase the number is by removing the bottleneck at hospitals where medical students get their practical training. Under the proposed reforms, they will be able to do residencies at the health maintenance organizations, rather than hospitals. The number of foreign students studying in Israel will be reduced or the program will be eliminated altogether to make room for hundreds of more Israelis.

Some of these reforms, in particular regarding foreign medical students, will require considerable extra spending since foreign students cover their own costs and aren’t subsidized. A detailed program would be formulated by a special committee three months after the legislation is approved.

The growth of private medicine at the expense of the public system is also in the law’s crosshairs. The number of new private operating rooms authorized by the Health Ministry has grown 40% in the last four years, in many cases facilities that were given retroactive approval after they had been operating without a license.

To stem the growth, the Finance Ministry proposes awarding licenses only after a “bidding” process under which hospitals seeking to add private facilities compete over how much publicly financed medicine they will do, and over the discount they are prepared to offer HMOs via the public sector.

Ronny Linder contributed to this report.

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