BRUSSELS Israel is sitting on at least $150 billion in future revenues following the discovery of vast offshore gas deposits, its finance minister said on Wednesday, and hinted that the final figure could be much higher.
The discovery of the Tamar and Leviathan fields in the eastern Mediterranean over the past years promises to transform an economy that is already growing rapidly thanks to a booming high-tech sector and strong private sector investment.
But while Israel may be relishing the prospect of running sovereign wealth investment like Middle East contemporaries Abu Dhabi, Qatar or Kuwait, officials are quick to emphasize that they are not about to abandon their high-tech, export-driven growth model.
"What is the value already discovered in the gas fields? In today's prices, Israel has $150 billion," Steinitz told Reuters in an interview in Brussels, where he was on his way to Paris for a meeting of the OECD, the club of wealthy nations that Israel recently joined.
That figure -- equivalent to 75 percent of Israel's gross domestic product -- may be vast, but it could easily be exceeded, with drilling having so far only taken place in 20-25 percent of the country's economic waters, Steinitz said.
"I don't know, I don't want to make a profit," he joked. "But there might be some other discoveries as well." In March, the Israeli parliament approved a law sharply increasing the government's tax on profits from the fields, with the maximum threshold raised to just over 60 percent, meaning future government income could soar. <ID:NLDE72T1Q9>
But again, Steinitz was cautious, emphasizing that while 60 percent of what could be several hundred billion dollars is a vast amount of money, the income will not come on stream for up to a decade and will be spread over 30-40 years.
An additional "two to three billion dollars" a year is expected to accrue to government revenues, but only in 8 or 9 years' time. That should help keep the budget deficit in check, but the broader impact is likely to be on investment.
Later this year, Prime Minister Benjamin Netanyahu will appoint a committee to advise on how to invest the income, including possibly establishing a sovereign wealth fund.
"I assume that we will decide to put a lot of the money in some kind of sovereign wealth fund, an Israeli fund that will invest elsewhere," Steinitz said, adding that a portion would also pay down government debt of around 75 percent of GDP.
In an economy that grew over 4.5 percent last year and is forecast to maintain that level this year and next, such a fund -- if successful -- might be in danger of causing overheating and further driving up the value of the shekel.
That is why officials are eager to emphasize that they have learnt lessons from others who have suddenly discovered vast energy resources in the past, and are focused on ensuring that Israel does not loose its competitive advantage in the high-tech sector, biotechnology and research and development.
"I have said very clearly, we won't let those very good (oil and gas) discoveries kill our exporting industries, we are not Kuwait, we are not Abu Dhabi," said Steinitz.
"Human capital is still the most important capital for this country. The gas is just a nice addition, it's not the main thing... It's really for the people's benefit."
For Steinitz, the long-term goal is to meet the European Union's Maastrict criteria -- a budget deficit of less than 3 percent of GDP and a debt-to-GDP ratio of less than 60 percent -- and to find ways of supporting the export industry despite a currency that has appreciated nearly 20 percent against the dollar over the past two years.
One initiative that has shown some results on that front is tax cuts for exporting industries, with most exporters benefitting from a corporate tax rate of 12 percent and those in the far north and south of the country, the least developed areas, having to pay just 6 percent tax.
(Editing by Patrick Graham)