Transcript Macro economic reform in Israel: The Trajtenberg Committee for

Macro economic reform in Israel:
The Trajtenberg Committee for
Economic and Social Change and the
Competitiveness Committee
Professor Eugene Kandel
January 2012
1
Trajtenberg Committee for social
economic change: Conclusions
and their Implications
2
The Protest’s Origins
Average Wage and GDP Per Capita Progress
120
116.1
115
GDP per capita
110
105
100
Real average wage per
employee job,
moving average
95
90
I III VVIIIXXI I III VVIIIXXI I III VVIIIXXI I III VVIIIXXI I III VVIIIXXI I III VVIIIXXI I III VVIIIXXI I III VVIIIXXI I III VVIIIXXI I III VVIIIXXI I III VVII
2000
Source: CBS
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
‫‪Housing Prices‬‬
‫‪1100‬‬
‫‪1000‬‬
‫‪900‬‬
‫‪800‬‬
‫‪700‬‬
‫‪600‬‬
‫‪500‬‬
‫‪400‬‬
‫‪300‬‬
‫‪200‬‬
‫‪100‬‬
‫‪0‬‬
‫מדד תשומות בניה‬
‫מדד מחירי הדיור‬
‫מדד המחירים ללא דיור‬
‫‪Source: CBS‬‬
Principles:
•
•
•
•
Reducing the cost of living in Israel
Reducing inequality
Emphasis on parents of young children
Maintaining fiscal responsibility
Social
Services
Taxation
Housing
Competiti
-veness
and cost
of living
Changes in
taxation
Encouraging
competition
Easing
the cost
of living
Changes in
taxation
Encouraging
competition
Easing
the cost
of living
• Cancel purchase taxes and customs
• Limit the use of anti-dumping tariffs
• Adoption of European standards
• Limit monopolistic control of key industries - food, fuel, seaports, water, etc..
Changes in
taxation
Encouraging
competition
Easing
the cost
of living
• Cancel excise tax increase on fuel
• Import duty exemption on a personal import through the
Internet on goods up to 300$
Offsetting the
education
cost
Changes in
taxation
Assistance
for young
families
Offsetting the
education
cost
Changes in
taxation
Assistance
for young
families
• Increasing the supply of day-care centers for children ages 0-3
• Free Education Act applied for ages 3-4
• Afternoon educational frameworks subsidy for ages 3-9
• Reducing excess burden of payments from parents
Offsetting the
education
cost
Changes in
taxation
Assistance
for young
families
• Two tax credits to fathers of children ages 0-3
• Expansion in the earned income tax credit grants for
working mothers
Assistance to
underserved
populations
Changes in
taxation
Reduction
of
inequality
Assistance to
underserved
populations
Changes in
taxation
Reduction
of
inequality
• Stopping the declining path of direct taxation
• Raising the top tax bracket
• Raising the corporate tax rate and tax on capital gains
Assistance to
underserved
populations
Changes in
taxation
Reduction
of
inequality
• Encouragement of employment of ultra-Orthodox
• Encouragement of employment of minorities
• Integration of people with disabilities in the labor market
• Enforcement of labor laws
Urban
renewal
Increase in
housing
supply
Housing
composition
Improvement
in the housing
market
Urban
renewal
Increase in
housing
supply
Housing
composition
Improvement
in the housing
market
•
Setting clear objectives for planning and marketing of housing units
•
Detailed government support and removal of planning barriers in large housing projects
•
Lowering the minimum price in Israel Lands Administration auctions
•
Reducing the concentration of land ownership
•
Dealing with empty apartments, and creating incentives for reconstruction of unsuitable apartment
Urban
renewal
Increase in
housing
supply
Housing
composition
Improvement
in the housing
market
•
•
•
•
Promoting an Urban Renewal Plan
Close guidance of selected compounds
Dealing with development costs
Establishment of decisive appraiser mechanism for
issues of urban renewal
Urban
renewal
Increase in
housing
supply
Housing
composition
Improvement
in the housing
market
• Create long-term rental market
• Determining the affordable housing designation
• Construction of small apartments requirements
The Committee's Conclusions
• Recommendations relate to a variety of problems
raised during the protests of last summer
• The report does not change the system, but improve
it from within
• The solution is not a complete one, but it deals with
many of the problems
Implications of the Report
• Immediate and significant relief of economic burden,
especially for young couples
• Reduction of inequality
• Creating a competitive and more efficient economy
• Improvement of decision making processes
Competitiveness Committee
Main Recommendations
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Committee Mandate
To examine the impact of current economic structure on the
competitiveness in different market sectors and on current financial
stability and economic efficiency. To recommend desirable policy
measures, in particular in the following topics:
1. Control of a public company through pyramidal ownership structure
2. Financial companies owned by non-financial firms
3. Measures to strengthen corporate governance in public companies
4. Application of antitrust policy
5. Special conditions for the allocation of government assets and obtaining
licenses and franchises by business groups
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Committee's Work
3 working groups:
1. Financial and non-financial holdings
Headed by Prof. Eugene Kandel, head of the National Economic Council
2. Pyramidal business groups
Headed by Prof. Shmuel Hauser, chairman of the SEC
3. Allocation of public assets
Headed by Prof. David Gilo, chairman of the Israeli antitrust authority
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Financial and Non-Financial Holdings
Holder of
controlling
interest
Infrastructure
Energy
Communication
Holder of
controlling
interest
Real
estate
Food
Commerce
Business sector
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Holder of
controlling
interest
Bank
Provi
-dent
fund
Bank
Pension
fund
Bank
Pension
fund
Financial sector
Public
funds
Israel’s Large Groups Tend to Form Pyramidal Ownership Structures
with a Controlling Shareholder
International comparison- number of tiers
Average pyramid “depth”
Colombia
Israel
Sri Lanka
Chile
Belgium
Turkey
Indonesia
Italy
Brazil
Spain
Korea
Thailand
Pakistan
Peru
Poland
Greece
Norway
Singapore
Mexico
France
India
Venezuela
Germany
Denmark
UK
Ireland
Japan
USA
Switzerland
1.4
1.2
1
0.8
0.6
0.4
0.2
0
The distribution of control of public companies
in Israel
International comparison:
10 major groups as a percentage of market
value of public companies
70%
60%
50%


OECD
Non- OECD
41%
40%
30%
20%
10%
0%
12%
88%
Source: Economics Department,
Faccio & Lang SEC
Claessens, Djankov & Lang
… with
-
a controlling shareholder
Source: Economics Department, the
Securities Authority
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Hogfeldt
-
Claessenset al.
Potential Problems with Pyramidal Ownership Structure
Public
controlling
shareholder
51%
Public
Company A
Capital: 51%
Vote: 51%
51%
Public
Company B
Capital: 26%
Vote: 51%
51%
Tunneling 
Inefficient allocation of resources 
Excess risk-taking 
Internal capital market (not effective) 
Double leverage 
Persistence 
Company C
Capital: 13%
Vote: 51%
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Controlling shareholder’s interest can be different than the
companies he controls
Potential Macro-Level Problems
Impact on macro economic •
stability
Combined Influence in •
several markets
Deterring foreign investors •
Inflation of indices •
Underdeveloped capital •
markets
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International benchmark- Number of “tiers”
Average Pyramid “Depth”
1.4
1.2
1
0.8
0.6
0.4
0.2
0
Source :Masulis et al. 2011- Family Business Groups around the World: Financing Advantages, Control
Motivations and Organizational Choices
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Key Recommendations
Separation of holdings in significant financial activity and non- financial activity .1
Prohibition of directors tenure in both financial and non-financial companies .2
Improvement of corporate governance and minority shareholder rights in pyramidal
.3
business groups
Restrictions of expansion of pyramids and their control of existing companies .4
Empowering the Antitrust regulatory authority to deal with pyramidal business groups .5
Competition considerations while allocating public assets .6
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Implication
Increase in competition within the market and market
•
competitiveness
Reduction of systemic risk •
Improvement of capital allocation in the market •
Continuance of the Israeli capital market development •
Full implementation will be carried out gradually
and is expected to affect the economy in the medium and the long term
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