Subchapters:
- Basic data
- Public finances and the state budget
- Banking system
- Tax system
Basic data
Compared to advanced Western economies, Israel’s economy went through the coronavirus crisis very successfully – also thanks to a rapid vaccination campaign. In the first year of the pandemic, it fell by just 2.4% of GDP. The year 2021 was marked by very strong growth of 8.1% of GDP. The Central Bank expects relatively high growth in 2022 and 2023, namely 5.5% and 4% of GDP. Within the Middle East region, Israel ranks fifth in purchasing power parity per capita ($49,840, PPP, 2021). In front of him are only the oil states of Qatar, the United Arab Emirates, Bahrain and Saudi Arabia. Check ebizdir for economical facts of Israel.
Unemployment remains low for a long time. During 2022, it should fall below the level of 4%. The first year of the covid crisis brought deflation of 0.6%. In 2021, price growth resumed and inflation reached a level of 2.8%. For 2022, the central bank expects inflation of 3.6%. The average salary in 2021 reached the level of 11,773 NIS (approximately 82 thousand Czech crowns).
Although it currently accounts for only 0.51% of world GDP, the Israeli economy is characterized by a high technological level of production and greatly exceeds the economies of its Middle Eastern neighbors. The country is a member of the OECD and ranks among the most economically developed countries in the world. Given the small internal market and the impossibility of trading within the region, exports are extremely important for Israel. Israel’s open economy is thus vitally dependent on trade with geographically distant countries. Other typical features of the Israeli economy are the continued high share of state budget expenditures in GDP creation (and not only because of high defense expenditures). The service sector creates the largest part of GDP, followed by industry and construction, the share of agriculture in GDP creation is gradually decreasing and hovers around 2%. The decisive industrial sector is the processing industry, which is mainly oriented towards branches with a high degree of added value. The main exports are defense technology, cut diamonds, pharmaceutical products, chemicals and electrical components. Imports are dominated by cars, food, crude oil and other raw materials.
Table from MOP + additionally balance of payments, indebtedness/GDP.
| Pointer | 2019 | 2020 | 2021 | 2022 | 2023 |
| GDP growth (%) | 3.5 | -2.4 | 8.1 | 4.3 | 4 |
| GDP/population (USD/PPP) | 42,910.10 | 39,492.50 | 43,310.00 | 46,160.00 | 48,340.0 |
| Inflation (%) | 0.8 | -0.6 | 1.5 | 2.9 | 1.8 |
| Unemployment (%) | 3.8 | 4.3 | 5 | 3.9 | 3.7 |
| Export of goods (billion USD) | 51.9 | 49.3 | 56.3 | 63.6 | 70.2 |
| Import of goods (billion USD) | 75.7 | 69.5 | 89.1 | 104.9 | 113.9 |
| Trade Balance (Billion USD) | -15.9 | -11.6 | -20.5 | -27.5 | -28.4 |
| Industrial production (% change) | 2.9 | 1.9 | 2.2 | 3.2 | 3.5 |
| Population (millions) | 9.1 | 9.2 | 9.4 | 9.6 | 9.7 |
| Competitiveness | 24/63 | 26/63 | 27/64 | ON | ON |
| OECD export risk | ON | ON | ON | ON | ON |
Source: EIU, OECD, IMD
Public finance and state budget
| Public finance | 2021 |
| State budget balance (% of GDP) | -4.4 |
| Public debt (% of GDP) | 69.1 |
| Current account balance (billion USD) | 22.2 |
| Taxes | 2022 |
| AFTER | ON |
| F.O | ON |
| VAT | ON |
During the political crisis, Israel operated on the basis of budgetary provisions (which, however, had no major impact on the practical functioning or economic performance of the country). In November 2021, the Knesset approved the budget for 2021 and at the same time for 2022. It amounts to 609 billion shekels ($194 billion) and 574 billion shekels ($183 billion), respectively. The creation and approval of the budget are essential political topics, as its failure to approve can lead to the fall of the government.
In the first year of the coronavirus, the budget deficit rose to 11.7% of GDP. The main reason for such a high deficit was increased expenses associated with the coronavirus pandemic, as well as a decrease in tax revenues compared to the previous year. Nevertheless, Israel is doing well with the rapid consolidation of public finances. In 2021, the deficit fell to 4.5% of GDP, which, combined with high GDP growth, led to a decrease in total relative debt to 70.3% from the previous 71.7%. As of March 1, 2022, the Central Bank had foreign exchange reserves in the amount of USD 206 billion (approx. 43% of GDP). The ratio of Israel’s foreign debt to GDP reached 33.3% at the end of last year.
Banking system
The Israeli banking system can be characterized as open, modern and developed. The core of the system is concentrated around a limited number of banking groups under the supervision of the central Bank of Israel established in 1952, which by law performs the standard functions of banking supervision, manages foreign exchange reserves, and issues coins and banknotes. It is completely independent of the government, the governor of the bank also serves as a cabinet advisor. In April 2022, the Central Bank of Israel raised the base interest rate for the first time since the outbreak of the coronavirus crisis, from 0.1% to 0.35%. Under these conditions, it provides loans to commercial banks, which are then used to provide loans to small and medium-sized enterprises.
The position of commercial banks in the Israeli economy is illustrated by the overall ranking of the most economically powerful companies compiled in 2021 by the Dun&Bradstreet Israel agency. He assigns Bank Leumi (profit of billion shekels, almost 9,000 employees) first place. Bank Hapoalim (profit of almost billion shekels, approx. 8,500 employees) is in second place in this ranking of companies. Mizrahi Tefahot (profit over billion shekels, more than 7,500 employees), Discount Bank (profit of almost 1 billion shekels, more than 8,000 employees) and First International took the next three places Bank of Israel (profit over 0.7 billion shekels, almost 4 thousand employees).
Among the commonly used payment methods of foreign trade in Israel are advance payments, deliveries to an open account, documentary collection or documentary letter of credit.
Selected financial institutions:
Bank Leumi
Bank Hapoalim
BankUnited Mizrahi
Bank Discount
First International Bank
Mercantile Bank
Tax system
The Israeli tax system can be described as clear and stable. It consists of 5 basic groups of taxes – income tax, capital gains tax, value added tax, health insurance premiums and real estate tax. Almost all taxes are subject to certain reliefs and exemptions.
Incomes of natural persons from gainful activity are subject to progressive income tax, which can reach up to 50%. All income from employment and/or occupation is taxable, including subsistence allowances. Passive income from bank deposits and savings, both in Israel and abroad, is also taxable. Regarding corporate taxation, the basic tax rate for companies is 23%. An Israeli company classified as a “preferred enterprise” is taxed on its “preferred income” depending on where its establishments are located (7.5% if located in “Area A” and 16% if located elsewhere). An Israeli company classified as a “special preferred enterprise” (annual turnover of at least NIS 10 billion) is taxed on preferred income at 5% or 8%, depending on where its establishments are located. VAT of 17% applies to most goods and services and to imports. Certain items are subject to a 0% rate, including exported goods, intangibles, the provision of certain services to non-residents (such as tourism services), the transportation of cargo to and from Israel, the sale of fresh fruits and vegetables. Wage tax is collected from non-profit organizations instead of VAT at 7.5% of wages. For financial institutions, a 17% tax on wages and profits is imposed instead of VAT.
