Coronavirus: A close look at Israel's challenges after the pandemic

Challenges and opportunities in macroeconomics, labor, welfare, education and health.

Stores on Jerusalem's Jaffa Street are seen closed amid the ongoing coronavirus lockdown, on January 14, 2021. (photo credit: MARC ISRAEL SELLEM/THE JERUSALEM POST)
Stores on Jerusalem's Jaffa Street are seen closed amid the ongoing coronavirus lockdown, on January 14, 2021.
What's ahead for Israel after coronavirus? A new report by the Taub Center for Social Policy maps out the challenges and opportunities Israel faces in the coming years in the fields of macroeconomics, the labor market, welfare, education, health and population.
Israel's GDP per capita decreased in 2020 by 4.3% and returned to its 2016 level, the report said. However, if the rapid immunization process continues, rapid GDP growth of 6.3% in 2021 and 5.8% in 2022 could bring GDP per capita close to what was expected before coronavirus.
Due to the pandemic, government spending increased by 22.5% in 2020 and the cumulative annual expenditure reached about 35% of GDP, while revenue fell to about 23% – a gap that created a deficit of almost 12%.
Israel's national debt increased to 72% of GDP in 2020, and it is expected to grow further, setting back the ratio of debt to GDP by more than a decade. Bringing the deficit back to its mid-decade levels will leave no choice but to raise taxes, the report said, but Taub researchers recommended that the state avoid raising indirect taxes, which are regressive, in order to avoid increasing inequality between Israel’s population groups.
Unemployment stood at 16% at the end of 2020. Although unemployment is expected to fall significantly, it will still remain high relative to its levels over the last decade, and the optimistic scenario for 2022 puts unemployment at 5.4%, the report said.
Meanwhile, the rise of remote work may affect rental prices and the demand for office space. The report speculated that there may be a shift in living patterns where people move from the central region of the country to the North and South and out of big cities to localities with lower prices and higher standards of living. If this transition takes place on a significant scale, it could affect apartment prices in the center of the country and the periphery, the report suggested.
Regarding the damage COVID-19 did to family incomes, the report's authors said the welfare system has been successful in providing a safety net for many citizens and reduced the incidence of poverty by about half in 2020. As the crisis ends, however, there is a danger that the system will return to the pre-crisis situation and even regress given expected demands for budget cuts. This may create a large group of new poor, condemning them to economic and social distress.
After months of teaching via Zoom, schools will have to examine which elements of remote learning work best, and whether changes may be beneficial to students from the periphery and vulnerable populations. Schools will also have to identify whether other coronavirus solutions, such as distributing computers to some students and reducing the number of students per class, can be maintained. There is also room to consider canceling or downsizing Bagrut (matriculation) exams and moving to a five-day school week.
Regarding health services, an opinion that gained traction during the pandemic was that Israel should invest more in community-based healthcare and not necessarily in-hospital care. The community care that was led by Israel’s health funds, which were entrusted with testing and vaccinations, proved to be a great success, the report said. The health funds also increasingly provided remote healthcare services through telephone consultations between patients and medical staff. If the use of telemedicine continues after the crisis, it will have an important impact on waiting times and quality of service, the report said.
Following the end of the pandemic, some are expecting a baby boom in Israel, whether due to the absence of work and travel, staying at home, or the desire of young people to “celebrate life.” Others think the crisis will actually lead to a decline in birth rates due to economic insecurity, cultural changes, rising legitimacy of non-parenthood, and the ecological cost of having children. It is possible that the decline in marriages happening during the crisis may affect long-term fertility trends among religious Jewish and Arab groups, the report suggested.
“It is difficult to know today what the consequences of the COVID-19 crisis will be after it passes," said Taub Center president Prof. Avi Weiss.
"However, data point to clear challenges that require attention soon, such as the deficit, the high level of unemployment that will continue even after many return to the labor market, and the long-term effects of the crisis on students, particularly those in vulnerable population groups, on early childhood, and on the health system – mental health in particular. There are many more challenges than meet the eye."