Photo Credit: Aharon Krohn/Flash90
Finance Minister Moshe Kahlon and Prime Minister Benjamin Netanyahu sign an agreement to build new lottery apartments, March 11, 2019.

On Sunday, the Bank of Israel published its report on the state of the economy in 2018, covering the rate of economic growth, the housing crisis, the budget deficit, the standard of living in Israel, the gross national product and the integration of the Arab and ultra-Orthodox population in Israel’s economy.

According to the bank’s report, in 2018 housing prices fell for the first time, after a decade in which they had been climbing continuously. The report pins this phenomenon on the government’s efforts which contributed to a reduction in demand. However, it should be noted that the overall decline in prices was mostly seen in Tel Aviv and southern districts, where the finance ministry has invested in its vast “price per occupant” lottery program. In other regions prices continued to rise.

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According to the report, since the ” price per occupant” program was launched at the end of 2015, only 18,000 households out of 59,700 who won the lottery have exercised their right to purchase an apartment at a reduced price. In other words, two-thirds of the winners did not exercise their right under the plan. In total, 140,000 households were issued a certificate of entitlement to participate in the raffles, as part of a bizarre housing policy that gave contractors great terms on government-owned land to build Soviet-grade apartment buildings no one wants, at an overall cost of 5.5 billion shekel ($1.516 billion).

The report also cites the government for failing to meet its goals regarding urban renewal projects designed to renew old living spaces in order to improve and strengthen residential buildings, upgrade public areas and infrastructure, and increase the supply of apartments. The government met only 88% of its 2016 target and 65% of 2017.

Prime Minister Benjamin Netanyahu received the Annual Report from Bank of Israel Governor Prof. Amir Yaron, and declared: ” The economy is in a good situation because our policy is good. We attained a unique achievement in which employment is at an all-time low and wages are rising rapidly. This combination, as you know, is unusual and not self-evident, but it is a great achievement.”

After receiving the report, Minister Kahlon stated that “the Israeli economy is in its best condition ever,” and promised that “any recommendation that will strengthen the Israeli economy and Israel’s social resilience will be adopted.”

Here’s a good place to start: stop the peculiar housing lottery system and make government lands available on demand to free market contractors. Housing via bingo drum has proven to be entertaining, like any circus act, but as the bank’s report suggests, no one wants it as a permanent feature.

According to the report, the government deficit stands at 3.8% of GDP, an increase of almost 2% compared to 2017. It’s the highest rate since 2013, and surpasses by almost a full percentage point the allowable government deficit. But there’s more bad news for Finance Minister Kahlon: according to the report, the deficit is expected to increase even more this year, too, if no action is taken. And by action the bank means higher taxes.

The report shows that Israeli citizens work more than their counterparts in OECD countries, but produce less with lower profits.

Israelis study more years than in other OECD countries, and the percentage of people with higher education is high, but the quality of Israeli education is low, resulting in low productivity and low wages.

Ouch.

The hospitality and food service industry as well as the construction and commerce industry account for about a third of Israel’s business sector, and the product per worker in Israel is as much as 35% lower than the average in other developed countries.

Once again, the main reason for this gap is the low quality of education in Israel. The grades attained by students in Israel are lower than their counterparts in the world, which is reflected in the labor market.

The incidence of poverty in Israel fell to 18.3%, but the rate of poverty remained high compared to the rest of the world. Half of the poor households in Israel are Arab and ultra-Orthodox, both with many children and often only one earner.

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