Although the progress is uneven, the economic numbers
continued their march up, indicating that the economy
improving after several bad years. The Finance Ministry
announced that its new budget will require further cutbacks
in government spending but it said that the social welfare
portions will not be cut back further. Some observers said
that there is hardly anything left to cut there, and
certainly no possibility of realizing any significant
savings.
The business sector's labor force grew at an annual rate of
4.2 percent, or 56,000 workers, in the nine months from July
2003 through March 2004, the Bank of Israel (BOI) said last
Monday. General employment rose at an annual rate of 6.2
percent in the same period. Although it has not happened yet,
BOI expects unemployment figures to begin falling soon. There
was a decline of 17,000 foreign workers during the same
period, the central bank said.
There was a 5.2 percent rise in gross business product during
the same period. The business sector's average nominal salary
rose 2.7 percent, and even more in real terms due to a drop
in prices.
The official unemployment rate has been steady at 10.8
percent for the past three quarters. However, there has been
a sharp increase in participation in the labor market, in
line with one of the goals of the Finance Ministry. If the
labor market was the same size as it was in early 2003, the
unemployment rate would have fallen to 9.1 percent in the
first quarter of 2004, according to the BOI.
Tel Aviv stocks crept up on Monday on low turnover, slowly
gaining momentum after Wall Street ended mixed last week. The
Maof-25 index rose above 546 points -- a level last seen in
October 2000. The Maof-25 index advanced 0.6 percent to 546.1
points and the TA-100 index rose 0.7 percent to 589.06
points, now less than 1 percent below its record high. On
Tuesday at midday the TA-25 was over 550 points and the TA-
100 was over 588. The Tel-Tech-15 index gained 0.8 percent.
Trading volume was heavier than usual at NIS 811 million.
Both indices have risen more than 7 percent since mid-May.
The dollar ended on Monday at 4.486 shekels, 0.3 percent
below its Friday rate. It appears to have settled in at a
lower rate than in recent months.
Many observers felt that now that the fog hanging over the
prime minister is being dispelled -- he won't be facing trial
for alleged corruption -- the investors are going to get off
the fence.
According to Ha'aretz reporter Nechemia Strasler, U.S.
Federal Reserve Chairman Alan Greenspan told Finance Minister
Netanyahu that he agreed with his approach of using surpluses
to reduce taxes rather than to pay down debt at this time, as
the BOI has urged. Greenspan said: "You should continue the
policy of reducing taxes, which indeed creates growth in the
domestic product, on the one hand, and amenable conditions
for decreasing government debt down the line, on the
other."
The Bank of Israel research department, trying to add support
for its recommendation to pay down the national debt which
now stands at 106 percent of GDP, published research claiming
that the Israeli tax burden at 39 percent of gross domestic
product is identical to the average of the 30 Organization
for Economic Cooperation and Development (OECD) nations.
Michael Sarel, head of the Finance Ministry's economic
division, replied to the study with two points: First, the
bank did not use the 30 OECD states but rather it used the 20
richest countries. Second, it just used a simple average and
not a weighted average. When calculating in these two
factors, it turns out that the average tax burden of OECD
nations is 32.5 percent, far below the Israeli rate.
Tel Aviv University's Dr. Dan Ben-David headed a team
studying Israel's central problem: low participation in the
work force, and high unemployment. One of the reasons for the
lack of desire to work is linked to high taxes. Ben-David
says that what is important is the marginal tax and not the
average. Income tax for Israelis is very high for the middle
class, one of the highest in the world. When a person is in
the sixth decile -- in other words, the center of the middle
class -- his marginal tax is 37 percent, much higher than the
OECD average.
The indirect tax burden is 29 percent -- higher than what is
accepted in the European Union, and 142 percent higher than
in the U.S.
The Bank of Israel said that its preliminary estimate of its
State of the Economy index (the "S" index) in May shows a
rise of 0.2 percent compared with a revised figure of 0.2
percent growth in April. The Central Bureau of Statistics
said industrial production for January to April jumped a
provisional 8.5 percent compared with same period a year
earlier. This follows similar growth in the fourth quarter of
2003 and an increase of almost 5 percent in the third
quarter.
The "S" index reflects changes in the long-term direction of
economic activity and is a combined figure reflecting a
number of leading indicators.
The increase in the "S" index in May was the ninth straight
rise, but the rise was lower than in the six months through
March, the Bank of Israel said. A fall in the subindex for
sales in retail and services offset rises in the subindices
for imports, exports and industrial output.
The largest rise was in the imports index, which climbed 15
percent in May following a 5.2 percent rise in April. The
exports indicator rose a more modest 0.1 percent, thus
reversing a fall of 6.3 percent a month earlier.
A year-on-year rise of 24 percent in industrial exports for
January through April helped drive growth in industrial
production, as exports account for about a third of output,
the CBS said. The number of employees and hours worked in
industry rose 1.5 percent on year.
Hi-tech led the surge, rising 16 percent, with exports
jumping 28 percent and the number of workers rising 4.5
percent. The hi-tech sector includes electronics, aircraft
and pharmaceuticals.
Production in industries with mixed and traditional
technologies rose 4 percent. This includes mining, rubber,
plastic, and metals. The number of workers remained
stable.
