Experts Urge Bold Structural Reforms to Sustain Israel’s Economic Growth and Living Standards

Israel’s economy, long seen as a success story due to its thriving high-tech sector and low unemployment, faces a looming challenge of slowing growth in living standards without critical structural reforms. According to a comprehensive study by former senior Treasury economists Dr. Michael Shraal and Dr. Lev Drucker, the main threat is not a financial crisis or inflation but deep-rooted structural issues such as demographic shifts, human capital disparities, heavy regulation, housing and transportation problems, and inefficient governance.

The study outlines 25 essential reforms across five key areas: education and human capital, labor market and public sector, taxation and savings, competition and regulation, and governance capacity. Implementing these reforms could increase Israel’s GDP per capita by over 50% within 33 years compared to a scenario without reforms. Significant measures include linking public education funding to measurable core skills achievements, expanding school autonomy, reforming teacher employment, liberalizing higher education, updating labor laws, increasing transparency and democracy in labor unions, and regulating strikes in essential services.

Additional recommendations focus on tax system improvements, reducing bureaucratic burdens, opening sectors like agriculture to competition, and integrated reforms in planning, housing, and transportation to better connect peripheral areas to employment centers. Governance reforms propose reducing the number of ministries and ministers, enhancing fiscal transparency, and decentralizing fiscal authority to local governments.

The authors emphasize that these reforms are not quick fixes but long-term investments to raise productivity and income levels. They acknowledge potential political and social resistance, especially regarding education standards, public sector employment, and deregulation. Nonetheless, they stress the urgency of shifting public discourse from dividing current growth benefits to ensuring sustainable growth for future generations.

Dr. Michael Shraal is the former Chief Economist at the Ministry of Finance and head of the Kohelet Forum for Economics, and Dr. Lev Drucker is a former senior deputy to the Chief Economist at the Ministry of Finance.