As Israel suffered its worst economic downturn two decades ago, then-Finance Minister Benjamin Netanyahu blamed the fat man – the public sector – for the crisis, riding on the shoulders of a thin man – the private sector.
In an interview in December just before forming a government with ultra-Orthodox and nationalist parties as his allies, Prime Minister Netanyahu said that the community’s high birth rate, low employment rate and reliance on state welfare created a burden that Contributed to the 2002 economic crisis in Israel. had to face
Netanyahu explained that Israel’s economy was in “crisis” for various reasons, including its “lavish welfare system that encouraged people to live on doles and not go out to work.”
Two decades ago Netanyahu’s plan was to “put the fat man on a diet”. This included cutting child allowances that increased with each successive child and implementing wide-ranging structural and regulatory reforms to encourage economic growth and prosperity.
Now the opposite seems to be happening. As part of a spending plan for the next two years, the government has fixed the allocation of billions of shekels in funds for causes that the finance ministry and leading economists have warned will enter the wider workforce. There would be less incentive and ability to do, develop and which represent an existential threat.
On Wednesday morning, Knesset lawmakers ratified the bi-annual NIS 484 billion ($131 billion) and NIS 514 billion ($139.5 billion) 2023-2024 state budgets, setting funding priorities and demands for a coalition with religious parties. Months of coalition on demands came to an end. Threatened to topple Netanyahu’s government.
Likud MK David Amslem reacts during a discussion and vote on the state budget in the Knesset on May 23, 2023 in Jerusalem. (Yonatan Sindel/Flash90)
With a May 29 deadline to pass the budget or call new elections, Netanyahu struggled to meet the demands of his ultra-Orthodox and religious coalition partners, including yeshiva stipends and schooling for the ultra-Orthodox community. involving funds of more than NIS 14 billion.
Of the money, it was agreed to spend approximately NIS 4 billion on increasing the budget for stipends at religious yeshiva student institutions. About NIS 1 billion has been directed as allowances for a food voucher program run by Shas leader Aryeh Deri.
Another NIS 1.2 billion is budgeted for private, non-supervised educational institutions that do not teach core subjects such as maths and English. Additional funds would be allocated for ultra-Orthodox education, construction of religious buildings, and supporting Haredi Jewish culture and identity.
Nonetheless, Finance Minister Bezalel Smotrich praised the budget as a “good budget” that would serve “all citizens of Israel”.
“The budget does not serve and does not provide a response to the needs of Israeli citizens, such as investment in reforms to deal with the high cost of living in the country, which have not been adequately addressed,” said Daphna Aviram Nitzen, of the Center Director Governance and Economy at the Israel Democracy Institute told The Times of Israel. “Instead, it allocates funds that are not growth drivers for the economy, at the expense of the lower working population, who will have to bear a higher tax burden to finance this budget.”
high cost of living
Israelis are mostly concerned about the high cost of living, according to a poll released Tuesday by IDI. It shows that two-thirds of respondents think food prices are the most important factor, and nearly half blame housing costs and 29% indirect taxation.
Most of the public believe the high living cost is to blame for lack of government action and only 27% blame large monopolies, and 3-4% blame local manufacturers, importers, or supermarket chains, the survey found. found .
“The government’s changing priorities are heavily reflected in the allocation of coalition funds,” Itai Ater, an economics professor at Tel Aviv University, told The Times of Israel. “Previously, funding for Haredi institutions was made available on certain conditions of teaching core subjects and the understanding that the ultra-Orthodox community needed to be encouraged to join the labor force.”
In Israel’s economic plans laid out by the Ministry of Finance and the Bank of Israel, there is a general consensus that the integration of the rapidly growing ultra-Orthodox community into Israeli society and its economy is an existential challenge. Core Tools is boosting employment rates and reforming the ultra-conservative education system by teaching core subjects to equip its graduates with the skills and tools they need to join the labor force.
“Two things have changed in that regard, we give them more money, and we don’t give them the basic education they need,” Etter said. “The economy cannot survive without more Haredi men joining the labor force.”
“Many Haredi women are already joining the workforce, but with respect to Haredi men, we are far from a good place,” he said.
Today, about 25% of school-age children are born into ultra-Orthodox families, and this proportion is expected to double by 2050. Overall, the ultra-Orthodox community makes up 13% of Israel’s population and, with an average of 6.5 children, will account for 16% of its population by the end of the decade, and nearly a third by 2065.
The average monthly salary of Haredi families – NIS 14,121 – is much lower than that of their non-Haredi counterparts, who earn NIS 21,843.
Itai Ater, Professor of Economics at Tel Aviv University. (Etiquette)
The Ministry of Finance has already warned that the allocation of funds to ultra-Orthodox institutions and initiatives creates a negative incentive for Haredi men to seek employment and will harm the labor market and the economy as a whole. With no change in the employment rate among ultra-Orthodox men, the cumulative GDP loss is expected to be NIS 6.7 trillion by the year 2060, the ministry estimated.
The dwindling workforce also means that the government collects fewer taxes, which are the main source of revenue for funding state budgets and government services. According to the ministry’s estimates, if Haredi men are not encouraged to work, by 2065 the government would have to increase direct taxes by 16% to maintain the same level of services such as health care and transportation. Provides without increasing losses.
Israelis are already struggling to make ends meet with rising costs of living, while economic growth forecasts have been cut and investments are being hampered by the government’s judicial reform plan and a slowdown in the global economy. Israel’s economic growth outlook for 2023 was downgraded this month to about 2.7% from the 3% forecast in January.
cut high-tech investment budget
While funds allocated to benefit the ultra-Orthodox community have been increased, other budgets for government entities that encourage economic development have been reduced. One of the government bodies to be affected is the Israel Innovation Authority, a government agency responsible for the thriving local tech ecosystem, which will see its NIS 1.5 billion budget reduced to NIS 1.4 billion.
Israel’s high-tech industry is the economy’s main growth engine, generating about 18% of GDP and accounting for more than 50% of exports and about 30% of payroll taxes. It also employs about 11% of the country’s workforce.
The Israel Innovation Authority stated that “despite efforts made over the past few weeks, the 2024 budget features a cross-section of cuts, which will include a reduction of NIS 100 million in the budget for high-tech investments.”
The authority provides most of the state grants to local early-stage startups to support disruptive technologies and help develop the country’s tech industry.
“Due to this planned budget cut, the Innovation Authority will have to prioritize its programs and reduce its investments in startups, growth companies and support future innovations of strategic importance to Israel, such as climate technology and artificial intelligence. “
That’s because Israeli tech companies have been struggling to raise new capital in recent months amid a global tech recession. In the first three months of the year, Israeli startups raised $1.7 billion in funding, down 70% from $5.8 billion in the first three months of 2022, according to data from IVC Research Center and LeumiTech. The quarter marked the lowest figure in four years.
“Our miracle is the high-tech industry, but we cannot survive only on it,” said Etter. “It is impossible to maintain a progressive and liberal economy if you have such a large [ultra-Orthodox men] The population not joining the labor force and those who are working are earning less wages because of their skills.”
In the absence of natural resources, apart from the recent discoveries of natural gas, the development of human capital and knowledge have been the main growth drivers of Israel’s thriving economy and society.
The government’s decision to allocate funds in favor of Haredi educational institutions, which fail to provide the core education in math, science, and English needed to function in a tech-driven economy, threatens Israel’s human capital base and development. put in
As the proportion of working taxpayers who also serve in the military dwindles and an increasingly ultra-Orthodox population is not entering the workforce fueling disproportionate welfare entitlements, the skinny guy gets fatter. Will be unable to lift the heavy weight of man.