Israel is expensive, poor and unproductive, Taub report says

NGO's State of the Nation report finds that poverty rates have increased fairly consistently, especially among Arab Israelis and the ultra-Orthodox populations.

A man in Jerusalem searching through the garbage (photo credit: MARC ISRAEL SELLEM/THE JERUSALEM POST)
A man in Jerusalem searching through the garbage
The state of the nation is impoverished, overpriced and unproductive, according to the Taub Center for Social Policy’s annual State of the Nation report, released Wednesday.
According to the report, the country’s overall poverty and inequality rates, when calculated based on market income (gross income from work, capital and private pensions), are close to the OECD average.
However, using disposable income (after transfer allowances and direct tax payments) overall poverty and inequality rates are among the highest of Western countries.
The reason for the discrepancies, explains Taub Center researcher Haim Bleikh, are differences in the demographic structure, the relative size of the elderly population and different welfare systems.
This section of the report examined people age 59 and under and those 66 and over.
Among the 59-and-under population, the findings indicated that Israel’s poverty and inequality rates are among the highest in the OECD in both market and disposable income.
When it came to the taxation aspect of redistribution, the study found that between 2003 and 2011, it became less progressive. In absolute terms, the poorest half of citizens saw a tax cut of NIS 130 to NIS 430 per month, but the top 20 percent of households got breaks between NIS 800 to NIS 2,500 per month.
“Direct taxes became less progressive between 2003 and 2011 and served to maintain, and in fact widen, net income disparities between households,” the study found.
Exacerbating the problem of high poverty levels was the cost of living.
Though the high costs have been taken as a given by anyone trying to buy an apartment or stock up on cottage cheese in the past few years, the report included a study that compared Israel with other countries over a 25-year period while accounting for exchange-rate fluctuations, which make such studies difficult. The result: Israel’s prices were higher than would be expected in all but four of the years.
“This finding was largely unique to Israel, and confirms that consumption prices in Israel have generally been relatively higher than in other developed countries, given the comparatively low level of incomes in Israel,” Taub Center Researcher Gilad Brand concluded. Prices had been particularly high in categories such as food, which Brand found coincided with an increase in profits in the industry.
Items such as clothing and footwear, however, had fallen in price due to increased competition from imports.
The report further found that the employment rates of people in this age group rose between 2002 and 2011, but that this was not accompanied by a decline in poverty rates.
On the contrary, the findings indicated that poverty rates have increased fairly consistently, especially among Arab Israelis and the ultra-Orthodox populations. In contrast, the report indicated that disposable income inequality rates rose until 2006 and have since stabilized.
Among the population age 66 and over, the report found that disposable income poverty rates are substantially higher than in OECD countries.
The findings indicated that 20% of retirement-age individuals in Israel are below the poverty line in terms of disposable income, compared to 12% on average in the OECD countries.
The report said the level of public and private pensions is not low compared to the rest of the world, but its distribution among the elderly is not equitable.
Public expenditure on welfare, according to the report, was about NIS 186 billion in 2014 – a figure that has shown slow growth in the past five years. The reason for this, Prof. Johnny Gal explained, is an increase in transfer allowances for the elderly population.
According to the report, some 80% of overall expenditure on welfare goes toward social security, which primarily includes allowances from the National Insurance Institute. The remaining 20% goes toward social services such as housing and family services.
Old-age and Holocaust survivors’ allowances, as well as long-term care allowances, together represent the largest expenditure (48%) among the various allowance types. The number of benefit recipients for these allowances increased 32% and 66%, respectively, since 2000 – a trend that demonstrates the aging of the population, Gal said.
In addition, the findings revealed that, following a recent government reform, the expenditure on services and allowances for survivors went from 0.25% of GDP in 2000 to 0.33% in 2014. Currently, this amount reflects about 5% of the total social-security expenditure.
With regards to the socioeconomic situation of young adults, the report found that the employment rate among those 18-22 declined from 31% in 1995 to 28% in 2010, and the share of men in this age group who are neither employed nor studying has increased from 76% to 81% among Jews and from 35% to 42% among Arab Israelis.
The report also found that there has been an increase in the number of those age 22-28 living with their parents.
Fuchs posited that this may be due, among other factors, to a delay in the marriage age or to higher housing prices, as well as to the delayed entry of many young adults into the workforce.
One of the major problems plaguing the country over the year has been low productivity – a small amount of economic activity per hour worked.
A comparison between Israel and 12 other OECD countries from 1995 to 2009 found that “the most substantial factor influencing the ability of various Israeli industries to narrow the gaps with the OECD-12 is the extent of the industry’s exposure to competitive imports.”
Once again, reducing barriers to imports and boosting competition was recommended as key to improvement.