JERUSALEM, May 1 (Reuters) - The government's proposal to revamp the judicial system is undermining investor trust and forcing high-tech businesses to migrate overseas, Israel's state-backed agency that encourages high-tech companies warned on Monday.
A study by the Israel Innovation Authority indicated 80% of firms founded so far this year were launched outside Israel and that companies also aim to register their future intellectual property outside - which would result in a devastating blow to Israel's tax revenues.
Israel's high-tech industry employs 10% of the country's workforce accounting for about 15% of economic production, more than half of exports and a quarter of tax revenue.
Proposals by Prime Minister Benjamin Netanyahu's hard-right coalition to give the government more involvement in the appointment of justices while reducing the Supreme Court's authority to strike down legislation have frightened present and future investors.
Opponents argue the plans would eliminate essential checks and balances, jeopardize minority rights and weaken Israel's democratic roots.
Final ratification of the government's fiercely controversial judicial makeover program has been postponed amid huge demonstrations to attempt to find a solution between proponents and opponents.
"Even if the legal-judicial crisis is solved, it will take time to reach a solution, and even after this, it will take time to build confidence with investors once more," said Dror Bin, chief executive of the Innovation Authority, adding that the legal plan was exacerbating harm from a weaker economy.
Benny Gantz, president of the major opposition party, claimed Israeli parties had made no progress towards a consensus after a month of negotiations.
"We started out with a number of ideas, first and foremost that there would be no politicisation of the legal system. It hasn't changed and it won't change," he said, as the Knesset parliament returned from its spring break.
In a study submitted Ministry the Innovation, Science and Technology Minister Ofir Akunis, the Innovation Authority identified a wide discrepancy between tech companies trading in Tel Aviv and on Nasdaq.
While the Nasdaq is up 17% this year, Israel's tech index is down 4%.
Should the disparity expand further, "many Israeli hi-tech companies will find it very hard to raise investment and will be forced to close or move to other countries," it stated.
It said that high-tech funding in the first quarter was barely $1.7 billion, the lowest quarterly amount since 2019.
The authority advised a variety of actions such as reducing restrictions, incentives to stimulate investment and incentives for entrepreneurs to register intellectual property in Israel.
"The findings...require the government to take rapid action in order to reverse the worrying trends it highlights," said Akunis, a long-time Netanyahu aide.