The cost to the government of providing old-age allowances is due to jump in the coming decades as the country's population grows older, putting an increased burden on a working population that is shrinking.
That's the conclusion of a study conducted by Assaf Geva of the treasury's economics and research division, which examines demographic and budget trends between the years 2009 and 2059.
"In the next two decades we expect an increase in public spending, mainly due to the aging of the population -- an increase that will be signficant but moderate by international standards," Geva said.
The study found that barring demographic changes or raising of the retirement age, the cost of old-age allowances as a percentage of gross domestic product will soar 52% in the next three decades and by 71% over the next five decades, the treasury study found.
That only reflects part of the problem facing policymakers because of varying population-growth rates. Among the groups who have the lowest rate of labor force participation - Haredim and Arabs - the rate is relatively high while among secular and traditional Jews, much more of whom hold jobs, population growth is low, the paper said.
Growing population of over-65s
Like other economically developed countries, Israel's population is aging as life expectancies rise and birthrates fall. Fewer working-age people will have the burden of supporting a growing population of retirees. The proportion of the population over age 65 will rise from 11% in 2014 to 14% in 2030 and 17% in 2059.
Meanwhile the proportion of non-Haredi Jews in Israel's population is forecast to increase to 50% from 70%. The Haredi population will increase to 16.6% from 10% today while the Arab population will grow to 23% from 20%, it said.
Nevertheless, the treasury research found that Israel is in a better position to cope with the problem than other developed economies because its population is aging more slowly and because the benefits it pays are less generous.
While old-age allowances will boost total public sector spending as a percent of GDP by 1.3%, in Norway the rise will be 13.4%, Canada 8.7%, Japan 8.5% in the United States by 5.5%.
The report said that if Israel can succeed in raising the labor force participation rate of Haredim and Arabs, the impact of an aging population on the country's finances will much smaller. Another solution the study proposes is raising the retirement age to 68 for both men and women - a one-year increase for men and a six-year increase for women. That would reduce public spending on retirees by 4.2%.