Israel should raise taxes to lower debt burden: OECD

JERUSALEM: Israel should find ways to raise revenue through higher taxes to lower its public debt burden that is expected to remain stagnant in the next two years, the Organisation for Economic Cooperation and Development said on Sunday.

The OECD sees the ratio of debt to gross domestic product remaining at around 66 percent through 2017.

"The current structural budget deficit is too high to allow a substantial reduction in public indebtedness and thus needs to be better controlled. Given the low level of civil expenditure, deficit reduction should focus on raising additional revenues," it said in a report. "The debt-GDP ratio will probably not fall in the next couple of years."

OECD Secretary General Angel Gurria told reporters that Israel's tax burden was low, relative to other countries, and the organisation recommended that it remove the value added tax exemption on fresh produce and institute a carbon tax for environmental reasons.

The OECD said current expansionary monetary policy was appropriate "to support activity and exports until inflation moves into the target range and the external environment allows interest rates to increase."

The Bank of Israel has left its key interest rate at 0.1 percent for 11 straight months and no move is expected in the near term despite the Federal Reserve starting to raise U.S. rates.

Gurria, who gave the report to Prime Minister Benjamin Netanyahu and Finance Minister Moshe Kahlon, noted that with economic growth slow and inflation expectations expected to stay low, "there is not in the foreseeable future any reason why the bank should tighten".

He added that globally, central banks have little ammunition left and that it was up to governments to make structural changes to encourage faster economic growth.

The OECD projects Israeli economic growth of 3.1 percent in 2016 and 3.3 percent next year, after an expected 2.4 percent pace in 2015.

It said that while Israel's economy had strong fundamentals, its main problems are poor worker productivity, wage inequality and poverty.

At the same time, the OECD said food prices were too high, the banking sector is concentrated and inefficient and the electricity market is still dominated by a "heavily indebted" state-owned company. It recommended turning the electric utility into a holding company, creating a separate infrastructure firm and boosting banking competition.

Kahlon said Israel has started implementing steps to boost competition in banks and other areas.