(Bloomberg) -- Israel is ratcheting up its deregulation efforts to stimulate economic growth and attract multinational companies, according to the director general of Prime Minister Benjamin Netanyahu's office.
Eli Groner, who coordinates among various government agencies to implement Netanyahu's economic policies, says regulations have been cut in 27 areas of the economy, from cosmetic imports to the hotel industry, with a goal of reaching 60 areas by the end of next year. Efforts to simplify regulation were presented this week to the cabinet as part of a wider two-year plan for government ministries.
Eli Groner
“Over the last couple of decades we've had regulatory creep and we've created an environment that's over-regulated,” said Groner, a former McKinsey & Co. consultant who immigrated to Israel at age 15 from New York.
“There's a very clear correlation between a country's standard of living and an excessive regulatory environment,” he said in an interview in his Jerusalem office. “When you increase a lot of wasteful costs into the system that don't create value, at the end of the day those wasteful costs filter down to the end consumer.”
Red Tape
Netanyahu has argued for decades that the government should get out of the private sector's way, yet Israel's spot in the World Bank's Ease of Doing Business ranking has fallen during his tenure -- from 30 in 2009 to 52 of 190 countries last year. Many in the private sector say Netanyahu hasn't pursued change as vigorously as he did as finance minister in the early 2000's, when he liberalized foreign currency exchange and lowered corporate taxes, among other reforms.
“The government is not doing enough to reduce the regulatory burden,” said Chen Herzog, who as chief economist at BDO Ziv Haft consults on large infrastructure projects such as the Leviathan gas field and a national fiber optic network. “We're beginning to lag behind.”
Groner says the effort to create a pro-business environment is ongoing. The corporate tax rate was cut to 25 percent from 26.5 percent in 2015 and is slated to fall to 23.5 percent next year. The government is mulling further reductions, he said.
For technology companies, new incentives could bring down corporate tax to as low as 6 percent and dividend withholding tax to 4 percent. Groner credits government measures for the economy's 6.2 percent growth in the fourth quarter, a surprisingly strong reading that was helped by robust car sales and investment for a new Intel Corp. chip factory.
“Israel is becoming more renowned in the last few years for being tax-friendly for corporations and for intellectual property,” Groner said. “That's a competitive advantage we will retain for the foreseeable future.”
To contact the reporters on this story: David Wainer in Tel Aviv at dwainer3@bloomberg.net, Yaacov Benmeleh in Tel Aviv at ybenmeleh@bloomberg.net.
To contact the editors responsible for this story: Alaa Shahine at asalha@bloomberg.net, Michael S. Arnold, Amy Teibel
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