Finance Ministry: Israel heading towards bankruptcy due to government

Sacrificing Israel's economy at the altar of yeshiva studies and politics

The cataclysmic consequences of the irresponsible policies pursued by most Israeli governments when it comes to the dictates of their religious coalition partners have been reinforced by a major study of Israel’s economy through 2059, published recently by Assaf Geva, a senior Finance Ministry economist.

Uri Regev 14/06/2015 13:52

Tags: economy ·  Finance Ministry ·  workforce

The cataclysmic consequences of the irresponsible policies pursued by most Israeli governments when it comes to the dictates of their religious coalition partners have been reinforced by a major study of Israel’s economy through 2059, published recently by Assaf Geva, a senior Finance Ministry economist. The findings are shocking. Geva projects mid- and long-term incomes and expenditures, and analyzes Israel’s relatively low work productivity compared to the OECD average. The report includes a number of “sensitivity tests” and alternative assumptions, basing its demographic assumptions on a study published by the Central Bureau of Statistics (CBS).

The senior economist concludes with the following: “… emphasize once again the importance of integrating the ultra-Orthodox and Arab sectors into the labor market, both in terms of participation and in terms of income and productivity. Continuing ‘business as usual’ will lead to bankruptcy in the mid- and long-term, as well as to a decline in the rate of GDP growth and rising inequality”!

Whichever way you look at the data, and however skeptical you may be regarding the ability to project the state of the economy in the coming years, one thing is clear: The degree to which ultra-Orthodox men are going to study core-curricular studies (math, science and English, which they refuse to teach in their state-funded schools) and participate in the workforce will have major ramifications on the health of the Israeli economy. Bear in mind, for instance, that the CBS projects (the middle scenario out of 3 demographic possible scenarios considered) that the Haredi community’s share of the population, which is approximately 11% at present, will reach almost 27% by 2059! Unlike the the more modern, Zionist Orthodox population, which is fully integrated into Israeli society, the ultra-Orthodox community emphasizes separatism as a pillar of its world view. According to governmental data, 55% of Israeli ultra-Orthodox men do not work. Most of them study full time in yeshivas.

To understand the context and scope of this challenge it is also important to note that the other under-represented segment in the workforce, Israel’s Arabs, currently number approximately 21% of the population today, but will increase only slightly to more than 23% in 2059 (because the birthrate of the ultra-Orthodox population is almost double that of the Israeli Arabs).

If Israel fails to integrate the ultra-Orthodox and Israeli Arabs into the labor force, government revenues will lag spending every year by 3.4 points, or 35 billion shekels, because tax collections from working people will have collapsed.

The study’s findings were described in the media, summarizing a critical, terrifying conclusion: “If Israel fails to integrate the ultra-Orthodox and Israeli Arabs into the labor force, government revenues will lag spending every year by 3.4 points, or 35 billion shekels, because tax collections from working people will have collapsed. At this point, Geva doesn’t try to predict Israel’s debt ratio, but he assumes it would reach Greek levels of 170% or more – or the levels of Israel’s 1985 economic tailspin. Thirty years ago, the government adopted the Economic Stabilization Plan, a wide-ranging program of budget cuts, price controls and structural reform. However, Israel’s demographics were very different back then… The message of Geva’s analysis is that integrating more ultra-Orthodox men and Israeli Arabs into the workforce isn’t a simply a matter of lifting them out of poverty and ensuring greater income equality. Rather, it is a problem for all Israelis.” [The Finance Ministry warns: Israel heading for Greek-style fiscal tragedy, Haaretz, June 1 2015]

The sheer anti-economic and irrational nature of measures taken by Israel’s politicians in this arena is symbolized by Economy Minister Rabbi Deri's recent decision to increase daycare subsidies for non-working yeshiva students, reversing the previous short-lived Government’s decision to condition such subsidies upon realizing the earning potential of both parents.

The current state of affairs is not only a far cry from the government’s stated goals but also from the “Start-up Nation” phenomenon that portrays Israel as a vibrant entrepreneurial hot bed. Leading economists estimate the damage to the Israeli economy of the absence of ultra-Orthodox men in the labor market at between $3 billion and $10 billion dollars annually. To put this in context, the annual US foreign and security aid to Israel, which is so critical to its wellbeing, is $3 billion!

Overwhelmingly, the majority of the Israeli public opposes the Government’s submission to the dictates of the ultra-Orthodox parties, including voters for Netanyahu’s own Likud party. You can imagine the public resentment of counter claims made by political leaders of the ultra-Orthodox community, such as MK Rabbi Moshe Gafni, who was just appointed Chair of the Knesset Finance Committee, claiming that Israel’s economy is not subject to “regular” economic laws, but is actually safeguarded by God, as stated in Deuteronomy 11:12: “It is a land the LORD your God cares for; the eyes of the LORD your God are continually on it from the beginning of the year to its end.” One must wonder why such ardent faith does not translate into seeking direct Divine support for the Yeshivas and related costs of Gafni’s constituency, but rather requires hard cash payments from the treasury…

It's going to change, somehow or the other. The question is: will that change happen in social conflict, in political conflict, or can it be helped to happen consensually and constructively?

"This is not sustainable, we can't have an ever-increasing proportion of the population continuing to choose unemployment,” said Professor Stanley Fischer, the former Governor of the Bank of Israel and currently the Vice Chairman of the U.S. Federal Reserve. “It's going to change, somehow or the other. The question is: will that change happen in social conflict, in political conflict, or can it be helped to happen consensually and constructively?” While the new study provides a much more detailed long-term analysis, warnings as to the disastrous consequences of Israeli politicians’ the refusal to address these critical issues has been challenged in the past, but to no avail.

Rather than stem the tide and address this looming social and economic plague, the coalition agreements signed recently (click here for Hiddush's full report) move Israel in the opposite direction. They restore child allowances that discourage ultra-Orthodox men from working, which Netanyahu well understands, and demonstrated in 2002 as Finance Minister under PM Sharon. They increase spending on Yeshivas and remove the requirement that ultra-Orthodox schools teach the core curriculum. They multiply subsidies and benefits to the non-working ultra-Orthodox population, and commit to override potential interference by the Supreme Court.

What we need to hope, therefore, is that change will occur before the unholy alliance of religion and politics further destroys Israel's economy.