The decision by Prime Minister Benjamin Netanyahu last week to make a one-time grant of 500 shekels ($139) to every Israeli child, up to four per family, and to the elderly has aroused a surprising degree of opposition from the Finance Ministry, the Bank of Israel and the National Insurance Institute.
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The gift came out of nowhere – without any serious discussion among policy makers. It’s seen as a populist device being used by Netanyahu to give a little bit of succor to an Israeli public suffering the hurt of the coronavirus health crisis, record joblessness and lockdown isolation.
Some see it as a Trumpian act, akin to the $1,200 checks the U.S. government is planning to hand out to taxpayers. Here, however, we don’t send checks through the mail. The fastest mechanism is to do it through the NII.
In any event, the cost of the giveaway will be about 1.9 billion shekels, a small amount compared to the 80 billion shekels Netanyahu has allocated to counter the economic impact of the epidemic. Nevertheless, it raises the question of how effective a tool it is. Is the money going to the people who really need it and is it doing much to solve their problems?
The grant’s universality is another problem. As a rule, economists and the NII support the idea of giving everyone aid without differentiating between their financial state. The reason is that if help is given only to the needy, the money will be less, it stigmatizes the recipients and undermines social solidarity. Universal benefits have the opposite effect: Since everyone is getting it, there’s no shame in being a recipient and no jealousy either.
The Netanyahu aid is in that vein – everyone from billionaires to those at the bottom reaches of the income ladder will get the same amount simply subject to how many children they have or their age.
There are lots of ideas about how the money could be allocated more effectively by ensuring it reaches those who truly need it. But if the criteria are used, the money will take a lot more time coming – a bureaucracy will have to set up to administer it, approve applications and hunt down cheaters.
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Still, there are better ways. One is based on an idea proposed by the NII itself for paying a monthly “basic income” to people who aren’t working that would enable them to pay for their necessities. The underlying assumption of economists who support the idea is that the world economy can’t guarantee full employment and perhaps, in the high-tech era, it doesn’t need to either. Governments should provide an income stream that doesn’t hinge on paid employment.
The coronavirus pandemic has given this idea new, albeit unfortunate, urgency. Hundreds of millions of jobs have disappeared and no one can be confident that they will return so quickly when the crisis is over. In Israel, there will be fewer jobs in the short term and the unemployment rate isn’t likely to return to its pre-crisis level of 3.6%.
Over the weekend, it rose to 24.9%, a number not seen anywhere else in the world. In practice, most of these unemployed are people who were put on unpaid leave, but estimates are that about a fifth of them won’t be coming back to their old jobs when it’s all over. Many employers will go bankrupt during the lockdown and consumer spending isn’t expected to return to its pre-coronavirus levels. The NII will be saddled with much higher spending to cover jobless benefits for hundreds of thousands.
The maximum time someone can get them is 175 days. If the coronavirus crisis continues for an extended period, many of Israel’s unemployed will have no income at all. Basic income is one way of addressing this problem.
The NII’s 2016 annual report presented a model of what this could look like, albeit its assumption was that it was being used in a normal period, not a global crisis. It assumed that the labor market was functioning and a program could be designed carefully. It’s a model for the good old days.
In the current crisis, the model needs to be simpler and more modest, and its purpose should be to help those who are truly needy. It’s a model for the bad present days.
The NII has the best and most complete data for managing social policy in Israel. It can identify those who are the neediest based on various criteria and give them the earliest aid. Who are they?
There are a million unemployed in Israel right now, but in practice, they are getting benefits. On the other hand, there are others who aren’t getting benefits, like the self-employed, the chronically unemployed, young people who haven’t worked long enough to qualify for help and others. Most of them don’t meet even the easier criteria the treasury announced last week.
NII has the ability to find them with an application process and means test. All the NII needs is the government to decide on criteria.
Several months ago, a group of researchers that included Prof. Dan Ariely, Prof. Tal Shavit, Keren Litani and Dr. Arik Sherman proposed a pilot program to the NII for a basic income. Nothing has come of it so far, but the group is maintaining a dialogue with the NII. The onset of the coronavirus crisis may present an opportunity to move forward.
Litani was allowed to see an internal NII document that, among other things, examines the costs of a program based on different income levels for the duration of the coronavirus crisis. It would ensure a basic income, against which any existing government allowance is deducted. So if the basic income is set as 2,000 shekels a month and someone is already getting disability benefits of 1,200, they would be entitled to another 800 shekels.
What could the neediest do with an allowance like that? Not a lot, but it is designed to let them at least buy food, medicine and hygiene products, not heavy expenses like rent. Estimates are that about a million Israelis would benefit from a program like this. If a monthly income above 6,000 shekels is the cutoff, the program would cost the NII 4.2 billion shekels a month.
Litani believes a pilot like this will enable policy makers to test the basic income idea at a time when the government is already spending heavily to cope with the economic fallout of the pandemic.
The NII can’t cover the cost of a program like this from its own budget – it would have to come from higher taxes, something that makes the odds of it happening poor. But the feeling is that the coronavirus is an unusually severe crisis that will create social and economic distress that demands dramatic solutions.