Economic challenges

Cutting the defense budget to fund the Trajtenberg recommendations can reduce inequality without compromising military capabilities.

Prof. Trajtenberg hands recommendations to PM Netanyahu [file] (photo credit: GPO)
Prof. Trajtenberg hands recommendations to PM Netanyahu [file]
(photo credit: GPO)
The good news is that the civilian jobless rate has fallen to the lowest level since 1978. In October 155,200 Israelis (5 percent of the workforce) were out of a job, according to figures released Monday by the Central Bureau of Statistics. This low rate of unemployment – the result of about eight years of impressive economic growth, despite a worldwide recession – is significantly lower than the Organization of Economic Cooperation and Development (OECD) average of 8.3% in October. It’s also lower than the US rate of joblessness, which stood at 8.6% in October and a whopping 10.3% in the euro-area.
Unfortunately, there is bad news as well.
The monthly unemployment report is notoriously unreliable because it is based on a small sampling of respondents.
Also, the jobless rate counts only those Israelis who are actively looking for employment and are, therefore, participants in the labor force. However, large swathes of society – particularly haredi men and Arab women – are not part of the labor force.
Just 57.5% of the adult Israeli civilian population was employed in the second quarter of the year, about 15% lower than Western economies.
Furthermore, our economy, which has so far outperformed most Western countries, will soon be dragged down by the ongoing recession in America and the European debt crisis.
Bank of Israel has lowered its GDP growth forecast for 2012 from 3.2% to 2.8%. Last month the OECD lowered its Israeli forecast to 2.9%. As a result of the slower growth, Bank of Israel predicts that the unemployment rate will climb to 6.4% by the fourth quarter of 2012.
The Israeli economy is embarking on a period of slowdown at a time when the gap between rich and poor has reached record proportions. The average income of the richest 10% is 14 times higher than the average income of the poorest 10% in Israel, compared to more egalitarian countries such as Germany, Denmark and Sweden where the gap is six to one.
Israel’s rate is comparable to countries such as Turkey and the US. And according to the 2010 National Insurance Institute’s Poverty and Social Gaps Report, released last month, a whopping 32.6% of Israelis lived under the poverty line before factoring in welfare transfers and other benefits, a slight improvement from 2009.
Income inequality and poverty were two of the central themes of this summer’s socioeconomic demonstrations that mobilized unprecedented numbers of protesters to take to the streets. If nothing else, the public’s collective expression of discontent succeeded in placing socioeconomic concerns higher up on the government’s list of priorities in a country dominated since its founding almost exclusively by diplomatic and security issues.
This summer’s protests demonstrated that severe poverty and extreme income inequality preoccupy Israelis no less than military threats. In fact, one of the central recommendations of the Trajtenberg Committee, created in the wake of this summer’s demonstrations, was to cut about NIS 3 billion from the annual defense budget and use the proceeds to fund socioeconomic programs with the goal of reducing poverty and income inequality.
Two central suggestions were to offer free pre-school education and extend the school day to 4 p.m. to make it easier for both fathers and mothers to find full-time employment.
Unfortunately, it appears that once again our military leaders have managed to play on our fears by warning that a cut in the defense budget could compromise Israel’s military strength and expose the Jewish state to existential dangers. Prime Minister Binyamin Netanyahu has, according to media reports, decided not to cut the IDF’s 2012 budget.
If true, this would mean the demise of the centerpiece of the Trajtenberg recommendations. It would also mean that this government has chosen to ignore the Brodet Committee recommendations – ratified by the government in 2008 – which obligated the IDF to streamline its operations in a way that would save NIS 30 billion by 2017, without compromising military capabilities.
A Bank of Israel study found that the defense budget for 2011 had exceeded the parameters set by the Brodet Committee by NIS 3b. During the years 2008-2010, the excess was about NIS 1.5b.
As the economy braces for a slowdown, it is imperative that the government maintain fiscal discipline. But it is no less important to take steps to reduce income inequality and poverty.
Cutting the defense budget – which experts on the Brodet Committee believe is eminently doable without compromising military capabilities, and using the proceeds to implement the Trajtenberg recommendations – would facilitate both.