Poor Israeli Children Will Be Hit Hardest by Budgets Cuts, National Insurance Institute Warns

Planned reductions in government spending will disproportionately affect lower and middle class families and drastically increase poverty, particularly among children, says the NII.

Planned spending cuts will take hundreds of shekels per month from the average Israeli family, the National Insurance Institute says in its first statement on the planned budget for 2013-2014.

The impact will be felt most greatly by the lower and middle classes, and the poverty rate will increase drastically, primarily among children, according to an official NII document. Inequality will also grow, it says.

The budget draft has been approved by the cabinet and is waiting for Knesset approval before taking force. It calls for cutting child stipends to NIS 140 per child and increasing income tax and value-added taxes.

The NII's statement was distributed to government ministries Tuesday.

"The simulations run by the NII's research division indicate that the average family whose parents are of working age will lose hundreds of shekels in total every month, whether the parents work or not," it says.

Israel already has the highest poverty and childhood poverty rates among the member nations of the Organization for Economic Cooperation and Development. It also has some of the biggest social gaps. The budget as planned will only make the situation worse, says the NII.

"The plan approved by the cabinet contains several proposals that are expected to harm families with children, particularly those with many children. This group is known to be subject to a high rate of poverty," it says. "The harm is not for a limited period, even though part of the budget overspending [that the plan is designed to address] is known to be temporary."

The NII therefore suggests that any cuts to child stipends be temporary, if they happen at all.

The NII's forecasts that the number of poor people will increase by 4.8 percentage points to 29.6% of the population; the number of poor families will increase by 4.4 percentage points to 23.9% of all families, up from the current 19.5%, while the number of children living in poverty will increase by 5.2% percentage points to 40.6%, up from the current 35.6% of all children.

The poorest people will feel the impact five times more than the top decile, whose available income will be left virtually untouched, says the NII. The income of middle-income Israelis will decrease by 1.5% to 2.5%, it says. The upper decile's income will decrease only 1.4%, while the bottom decile's income will be cut 6.5%, it says.

While the cut to child stipends will save NIS 2.7 billion, it goes against the need to reduce childhood poverty, says the NII. This is the one single step that will be responsible for the greatest increase in poverty rates, it says.

Child stipends are already relatively low in Israel compared to those in other Western nations, says the NII. The cuts will make them even lower, putting Israel fourth on the list of OECD nations that pay the lowest child stipends, it says.

The NII proposes countering the cuts by increasing negative income tax rates and the number of people eligible for the tax. This will limit the impact on some poor families, it says.

Eliyahu Hershkovitz