What are the economic measures that the state should promote? The Bank of Israel has a series of moves that it recommends the government promote. In the document that the central bank is now publishing, it points to a series of important actions in the housing market, lowering the cost of living and in the field of infrastructure and transportation.
The most interesting idea in the context of the capital market is the Bank of Israel’s proposal to switch to a uniform taxation system on profits from the stock market – with the idea being to stop taking inflation into account completely. According to the plan, the tax will be nominal on all savings and deposits. The bank explains that there are two methods in Israel – the nominal profit is taxed on profits from shares as well as non-linked bonds and some mutual funds, and at the same time a tax on the real profit on profits from linked bonds and other instruments. According to the bank, “the existence of two different taxation tracks for financial assets is a method unique to Israel, which distorts the allocation of financial investments in the economy and thus affects the development of the prices of financial assets, and in particular the exchange rate.”
The central bank also wants the government to help the stock exchange to increase the liquidity of the shares in the stock exchange, by making a market alongside the “efficient and competitive loan pool”. The bank is asking the stock exchange to create incentives to attract market makers with a large market share, so that they can provide large volumes of liquidity, to consider reducing trading fees for market makers, to establish an efficient and competitive loan pool while reducing loan fees for market makers, and to reconsider the barrier to this activity for Israeli banks. The Bank notes that there is some progress on the issue when a joint team of the Bank of Israel and the Securities Authority was brought forward, when the recommendation entered the report of the team for examining the concentration law, but the Bank of Israel notes that legislative amendments will be needed to allow banks to act as market makers.
In the area of housing: cancellation of price plans for residents and apartments at a discount, support for a deposit linked to apartment prices, and promotion of urban renewal in the center of the country
The Bank of Israel says that the government programs such as a discounted apartment and a price for the tenant “help the winners but do not increase the housing supply” and are therefore ineffective and do not solve the problem. So what?
The Bank of Israel supports the proposal put forward by Finance Minister Kahlon at the time and Prime Minister Netanyahu recently repeated it according to which the government will issue a deposit linked to apartment prices but only to the population that does not own an apartment. The deposit will be offered through the banks, which will compete in a tender for the interest rate, but the government will guarantee the linkage. They are also calling on the bank to increase the supply of housing also by converting offices into residences, as well as support for shortening the granting of building permits.
The Bank of Israel also calls on the government to reduce the taxation gap in the field of long-term rentals between private and institutional investors (that is, companies that enter into activity in the field), to help municipalities receive more money from each resident and to reduce their income from businesses (that is, to raise property taxes for residents and lower property taxes for businesses) – the government plans to promote This is within the framework of the Settlements Law.
And what about urban renewal projects? According to the central bank, an urban renewal project in the city centers is NIS 300,000 better for the economy than in the periphery. Therefore, the state is called upon to promote urban renewal projects on a large scale precisely in the metropolitan centers, also through taxation on the spread of construction, or in the language of the bank: “Taxation on the lack of realization of the potential of urban renewal, especially in areas where the overall economic benefit from the rapid promotion of these processes is great (areas have high accessibility to public transportation and quality employment)”. 
Exposure to imports: to continue the line of the previous government – to expand the opening of the Israeli economy to imports
In the area of exposure to imports – the Bank of Israel says that the government has acted in the right direction in the past year (meaning that this is positive feedback to the government of change) and it recommends that the new government continue in the same line – reduce regulation on parallel imports, a move that the new government also intends to promote, stricter enforcement of anti-competitive measures by importers Source, when the competition authority’s bill on the matter passed in the first reading in the meantime. The bank is also calling for the adoption of international standardization, a move that began in the previous government with a comparison of Israeli standardization to the European one, enforcement in the markets instead of at the border (also passed in the previous government). The bank also calls for maintaining the tax exemption for personal imports, at least until taxation at source is regulated by a sufficient number of sites abroad, or an efficient and simple local collection mechanism.
However, the bank notes that “no progress has been made” in removing restrictions on the entry of service companies into Israel. The Bank of Israel does not refer to the field of agriculture at all this time, but it is likely that they also support the opening of the market to competition and imports in this field as well.
And what about taxing electric vehicles? The Bank of Israel says that benefits should not be given, because people with electric vehicles drive them more than people with gasoline vehicles, and this causes traffic jams
According to the Bank of Israel, in 2022 electric and hybrid vehicles accounted for no less than 10% of private vehicle travel in Israel. This is a very significant jump in recent years. The bank also states that these vehicles make up only 6% of all vehicles, and in 2016 they were only 2%, meaning – people who drive electric and hybrid vehicles drive more in their vehicles than people who drive gasoline vehicles, and therefore they also cause an increase in traffic jams.
In the words of the Bank of Israel, “the use of hybrid and electric vehicles against the need to reduce the number of passengers is expanding and reducing the cost of traveling by private vehicle, due to the decrease in fuel consumption” and therefore at the same time “the power of the travel tax (excise tax) to curb the expansion of the number of passengers” is decreasing.
The Bank of Israel also says that travel on Israel’s roads increases by 4% every year, twice the rate of population growth in Israel which is about 2% per year, in addition – “travel in Israel is biased towards the use of private vehicles” when according to the data more than 60% travel in private vehicles theirs for work. According to the Bank of Israel, these data lead to an increase in congestion (load) on the roads – and this is only expected to worsen since the annual increase in the level of motoring in Israel is at a very rapid increase compared to the rest of the world, even though relatively at the moment the number of vehicles in Israel relative to the size of the population is lower. In other words, the Bank of Israel supports the reduction and even cancellation of tax benefits for electric vehicles.
And what are the solutions? The Bank of Israel proposes to apply the congestion charges in Gush Dan starting in 2025 and not cancel them (the new government plans to cancel them). The bank also says that the metro should be approved and promoted, as well as the five-year plan to expand the public transportation system, when NIS 700 million from the revenue from the congestion fee will be directed to the expansion of the public transportation system.
The bank also calls on the government to plan and implement the housing and transportation plans not for a period of 5 years but for the next decades, to continue to increase the investment in public transportation infrastructure, throughout the country, to give priority to the use of underground public transportation in the center of the Tel Aviv metropolis, and transportation with dedicated routes, including rail , in less crowded areas. And of course congestion charges – “with the development of the level of service in public transportation, the demand for traveling by private car must be regulated by increasing its relative price” and also “reduce the incentives to use a private car related to salary” – that is, cancel the car benefits at workplaces (in this context – the government can affect the public sector of course).
