Inequality, Not Just Poverty, Grew in Israel Last Year

National Insurance Institute: Trend toward more equality was broken in 2014.

Olivier Fitoussi

Israeli income inequality worsened last year, but that was mainly due to a stingy government, according to figures from the National Insurance Institute released Wednesday and the agency’s annual poverty report.

Income inequality based solely on wages and other private income increased in 2014, but only 0.3%, based on a commonly used inequality metric called the Gini index. But inequality taking into account taxes and government allowances grew 2% to a Gini coefficient of 0.370, the NII said.

As a result, inequality was 17% higher than the average for countries belonging to the Organization for Economic Cooperation and Development, of which Israel is a member. Only Mexico, Turkey and the United States had higher rates.

The news about rising inequality and poverty elicited strong reactions across the political spectrum, including a call from Isaac Herzog, the Zionist Union chairman and opposition leader, for a government investigation into how the state had failed to tackle the problem.

Herzog blamed Prime Minister Benjamin Netanyahu for the problem going back to when he was finance minister 12 years ago. “He lowered whole classes of people into poverty in 2003 and has done it again in 2013 and after,” Herzog said.

Finance Minister Moshe Kahlon blamed the rise in inequality and poverty on the previous Netanyahu government’s cuts in child allowances. “We have corrected this distortion in the current budget, restoring child allowances and adding 600 million shekels [$155 million],” he said.

The 2014 increase in inequality marks the first setback in a trend toward reduced inequality that began in 2006. Still, the gains of recent years have yet to reverse a trend of growing inequality, a key stretch of which lasted from the end of the 1990s to 2006.

The gaps between the highest income earners – the wealthy and the upper middle class – have narrowed over the last 15 years, but the gaps between all other income groups, including those between the middle class and lower-income groups, have widened.

In 2014, the trend continued. The incomes of the lowest groups were little changed while those of the richest rose the most. For the bottom 20%, disposable income increased just 0.4% while that of the top 20% grew 5.3%. For the middle class, the increase was between 2.3% and 2.7%, according to the NII.

The institute said the hardest hit among low-income households were the working poor, whose income after discounting for inflation actually declined. Kahlon said Wednesday he had directed the treasury to again increase negative-income tax payments to encourage people to work and reduce the phenomenon of the working poor.

But MK Eli Alalouf (Kulanu), who chairs the Knesset Labor, Welfare and Health Committee, said more work had to be done. Alalouf, who chaired a government anti-poverty committee in the last government, said poverty and inequality needed to be addressed by more frequent raises of the minimum wage as well as child and old-age allowances.

“Poverty isn’t only about money. Poverty encompasses many factors. We have other goals [to treat it] connected with education, employment, ensuring rights and lowering the cost of living,” he said, adding that he sought to bring Israel to the OECD average with a decade.