NII: Israel has one of widest social gaps in West

Recent budget cuts have reduced social expenditures in Israel to among the lowest among western countries, while the parallel income tax reforms primarily have benefited the wealthy, leading to one of the largest social gap in the West, according to the National Insurance Institute's annual research report released yesterday.

The NII warned that if this trend continues, Israel will soon find itself with the widest social gaps in the West.

The sharpest decline in social expenditure was in NII allotments, which have dropped 11.5 percent in real terms since 2001 with the per capita average cut by 16 percent. Some NIS 42.8 billion in allotments were issued in 2004, compared to NIS 46.8 billion in 2001, which when adjusted for population growth and inflation, translates to a real drop of NIS 6.3 billion. In 2001, allotments constituted 9.3 percent of gross domestic product, compared to 7.9 percent last year, a retreat to the levels of 1997.

Israel dropped last year to 24th on the social expenditure scale among the 30 nations belonging to the Organization of Economic Cooperation and Development. Despite treasury claims that allotments in Israel were too generous and encouraged people not to work, Israel ranked 20th in 2002.

Social expenditure, which includes allotments, health and welfare spending and vocational training, dropped from 19.3 percent of the GDP in 2002 to 17.7 percent in 2004, compared to an average of 21 percent in the OECD. The data shows once again that the country's welfare services are not particularly generous compared to the international community, whether in 2001, when welfare allotments reached their peak, and certainly not in 2004, according to NII Director General Yigal Ben Shalom.

The last two years have been marked by shrinking allotments for people of working age, while unemployment allotments sank by 43 percent, followed by child allotments, down 40 percent, and guaranteed income for retirees, down 20 percent. Only 20 percent of the unemployed are eligible for unemployment compensation, placing Israel at the very bottom of the OECD scale. Cutting unemployment eligibility hit the weakest workers, those with low paying, part-time jobs, the hardest.

When the gradual cuts in child allotments are completed in 2009, Israel will fall to the bottom of the OECD ranking for child allotments as a percentage of per capita GDP. Currently, child allotments are 4.7 percent of per capita GDP and by 2009, they will be only 2 percent.

"There's no need to fall into the trap of poverty to start to recover from this," said Leah Ahdut, NII deputy director general for research and planning. "It is already possible to understand how much those cuts have cost and will continue to cost in the coming years, and to change direction, the way England did.

"After England fell into the abyss of Thatcherite policies that made deep cuts in social spending, it sobered up and made a change, making the reduction of poverty a goal - and it is meeting its goals," said Ahdut, who oversaw the study.

Bucking the trend in the West toward stability and poverty reduction, the dimensions of poverty in Israel are expanding, according to the data. In the 1990s, there was a smaller percentage of poor families in Israel compared to the United States - 12.6 percent versus 18.3 percent. But over the last several years, Israel has lost its advantage, having moved away from countries like England and Canada, to which it was once compared. England has reduced poverty by 2 percent and Canada by 1.3 percent, while in Israel, poverty increased to 18.1 percent of the population in 2002 and 19.3 percent in 2003.

The treasury's agreement to start increasing allotments to the elderly poor, as demanded by the NII, will reduce poverty among the elderly, according to the report. But the authors recommend taking steps to reduce poverty in families with children, by, among other things, halting child allotment cuts and applying a negative income tax to increase the income of low-wage workers. A committee appointed by the treasury to examine the negative income tax proposal has been working on it for months.