Peace Would Give GDP $53b Boost, Claims Expert

That 'peace dividend' would make it possible to cut VAT to 12%, from 18%, says Yarom Ariav.

Moti Milrod

The absence of peace, or of at least a peace process, carries a steep price tag for Israel according to a study presented Tuesday at Haaretz’s Israel Conference on Peace by Yarom Ariav, an economist and former director general of the Finance Ministry.

After a decade of peace with the Palestinians, Israel could expect to add around 180 billion shekels ($52.5 billion) a year to its gross domestic product, Ariav said.

Peace would bring a 6% annual increase in exports every year, to reach $95 billion by the end of that decade. The number of incoming tourists would grow to five million a year, contributing another $22 billion to GDP, he said. Foreign investment would grow to $10 billion annually.

An 18% rise in GDP would generate some 54 billion shekels in additional tax revenues for the state, while defense spending would decline to 4.5% of GDP, from its current 6%. That would save 10 billion shekels a year by the end of the decade.

An improvement in Israel’s sovereign credit rating would cut its annual borrowing costs by 2 billion shekels, the study showed. All told, Israel could have an additional 67 billion shekels a year by the end of the 10-year period.

That “peace dividend” would make it possible to cut the value-added tax to 12%, from 18%, and to increase spending on health, education and domestic security.

The “glass ceiling” restricting Israel’s economic growth to 3% a year could be broken if the peace process were resumed, Ariav argued.

Prof. Manuel Trajtenberg, former head of the National Economic Council, said such benefits should be considered in weighing the pros and cons of peace.

“We can’t let economic factors be the decisive ones,” Trajtenberg told the conference. “The overriding factor should be values. Woe to us as a nation and a state if [economic considerations] are the decisive ones.

“But in order to deal with these difficult issues, the socioeconomic aspect ... needs to be clearly spelled out. Otherwise we won’t be able to look our children and grandchildren in the eye and say we considered everything that would make us a normal country,” he said.

Trajtenberg said the most serious economic threat facing Israel without a peace process comes from a loss of patience on the part of friendly governments.

“We have to move ahead with a diplomatic process based on good will and faith because trust is critical in the world of economics,” He said. “Without the diplomatic process – and I am not saying peace or an agreement – the writing on the wall is clear … We will experience slowing economic growth and higher defense costs. The young won’t have this.”