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The finance minister shifted uneasily in his chair, looking this way and then the other, until he could no longer restrain himself, and commented: "Are you sure there is intentional discrimination?"

"Yes," answered Dr. Momi Dahan. "It may not be a nice thing to hear, but the Arabs are discriminated against when it comes to the budgeting of the education system, and insofar as a failure to establish industrial areas is concerned, and also when it comes to employment barriers, and with respect to the wage levels they receive. For example, of the 500 communities that are afforded benefits in the field of education, only four are Arab communities."

And another figure: Among the 222 communities in which the Investment Center invested during the first half of 2005, there is just one Arab community - Ilabun.

And if we add to all this the economy's inundation with blue-collar foreign workers and the lax enforcement of the labor laws, including minimum wage, it becomes clear why the poverty rate among the Arab population reaches 50 percent (!), while the rate among the Jewish population is just 16 percent.

Dahan, who headed the team that carried out the principal study for the Caesarea Conference, "Reducing Poverty in Israel," spoke about the main difference between poverty among the Arab population and in the ultra-Orthodox sector. Poverty in the Arab community stems from discrimination both by the state and private sector, while poverty in the ultra-Orthodox sector is "poverty out of choice," which stems from three components - the content studied in the ultra-Orthodox education system (no English, math or sciences) that does not suit the needs of the job market; just 40 percent of ultra-Orthodox men in the main working age-group (25-54) go out to work, as opposed to a rate of 90 percent in the Jewish sector in general; and the number of children in an ultra-Orthodox family is double that of the number in the non-Haredi Jewish sector.

With this being the case, no wonder they are poor.

But are they really poor? And I don't mean "off-the-books work," which is common practice in both the ultra-Orthodox and Arab sectors, but a subjective sense of poverty. A survey examining the sense of poverty among the ultra-Orthodox revealed that as far as their subjective sense of poverty goes, the poverty rate in their community (25 percent) is lower than the rate felt by the population in general (29 percent). Among the Arabs, the finding was the opposite (see graph). And who is a rich man? He who is content with his lot.

Another of the team's interesting findings was that if one were to measure the poverty rates in the population, without the ultra-Orthodox and the Arabs, one would not come up with much of an improvement. The poverty rate would drop only from 20.8 percent to 19.1 percent (see graph). One has to add a reservation to this surprising finding. The right thing to do would be to take the existing allowances budget and redivide it among the population - without the ultra-Orthodox and Arabs. Then every poor individual would get more, and the poverty rate would indeed drop sharply - and this is the correct picture.

The team tackled the poverty problem as if it started in 2003, the year of the big cuts. But the poverty problem began way before that. Already in 1981, a government fell following a no-confidence motion by former MK Aharon Abuhatzeira, who raised a cry against the increase in the poverty rate.

And indeed, the figures show that year after year for the past 30 years, and primarily in the 1990s, the government has increased the allowances - but the poverty rate did not shrink, but went up, in fact. The tens of billions that were spent were to no avail. They dulled the desire to work, and resulted in the job participation rate dropping to one of the lowest in the Western world - and this explains the increase in poverty. Because when both spouses work, poverty all but disappears.

The "Reducing Poverty" team failed to agree on recommendations because of their problematic nature. The treasury and Bank of Israel representatives refused to put their names to recommendations that included increasing child allowances, lifting the restriction on increasing expenditures in the budget (which currently stands at 1.7 percent of GDP), maintaining a budget deficit of 2 percent (with Abraham Hirchson speaking of a 0 percent deficit in 2009), and suspending the process of lowering taxes - with the finance minister speaking of accelerating the rate of lowering income tax and company tax.

In other words, not only is the solution incorrect, but it is also unrealistic. Such a solution, if implemented, would lead to one dangerous result - the cessation of growth. And without growth, it is impossible to tackle poverty. There isn't a single study worldwide that finds that if government expenditures and taxes are increased, growth results.

Therefore, busting the budget is not the solution, nor is increasing allowances. The answer can be found in cutting the budget and streamlining the government, lowering taxes, implementing reforms, subsidizing day-care centers, offering professional training courses, improving transportation infrastructure, reducing the number of foreign workers, and, primarily, streamlining and improving the education system. This is the only way to provide a real solution to poverty.