Poverty report challenges anti-welfare economic policy

"In 1999, about 29 percent of the children living below the poverty line were rescued by the welfare system compared with 14% in 2005."

As the number of poor people in Israel is continuing to rise and the costs of the fighting in the North are ballooning, economists are divided over the question of how the government should rearrange its priorities to tackle the war on poverty. "The damage to the welfare system is the result of the erroneous economic concept implemented during 2002 and 2005, which saw economic growth as a substitute for the welfare system", said Prof. Zvi Sussman, former deputy governor of the Bank of Israel on Thursday at an emergency meeting of the Zichron Ya'acov Process steering committee. The committee discussed socioeconomic solutions and economic repercussions of tackling the war on poverty following this week's publication of the poverty report for 2005. "In 1999, about 29 percent of the children living below the poverty line were rescued by the welfare system compared with 14% in 2005." The Zichron Ya'acov Process is a socioeconomic agenda for Israel that examines ways of reducing poverty and has been developed by the Israel Institute of Social and Economic Research in cooperation with the Friedrich-Ebert-Stiftung. The poverty report for 2005 published on Wednesday, which showed that the number of poor people in Israel has risen despite higher employment, economic growth and a higher rate of employment among the poor, has called into question the correlation of economic growth as a catalyst for reducing poverty. Sussman implied that the concept failed - the concept that supported the unprecedented cuts in social security benefits in 2004 and 2005 dismantling welfare systems as a way of reducing poverty levels assuming that such measures would be accompanied by economic growth and higher employment among the poor. Adversely David Klein, former governor of the Bank of Israel, maintained that the socioeconomic approach, which claimed that the increase of welfare benefits would work toward narrowing social gaps and reducing poverty, has proven to be inappropriate. "Even before the war, the situation of the welfare system in the North had been bad; therefore, during the fighting itself, the system could not work as would have been required," said Sussman. According to estimates by Dr. Roby Nathanson, director of the Israel Institute of Social and Economic Research, the country will, over the next year, see an additional 50,000 people falling below the poverty line, with 20,000 cases due to the fighting in the North. To avoid a situation in which more citizens would fall into the poverty trap as a result of the war, Sussman suggested a freeze on the tax reduction policy until 2010 and an increase of the budget deficit to the 3% ceiling. With regard to the 2007 budget, Klein said that the main problem today is not the costs of the second war in Lebanon but the costs of the next war. As such the government, according to Klein, had only two options - either to resort to the original budget plan for 2007 or to increase the budget deficit and thus destabilize fiscal discipline. "In addition, any change or increase of the defense budget needs to undergo public inspection," said Sussman. An opinion poll conducted by the Institute of Social and Economic Research in August showed that 70% of the Israeli public was against welfare cuts for the sake of the defense budget. "This government was elected on the basis of a civil and socioeconomic agenda, and this explains why there is no consensus among the public for the financial demands of the defense budget at the expense of social benefits," said Nathanson.