Inheriting the Earth, and Its Woes

Passover, a holiday celebrating liberation, is almost upon us. We can try to take comfort that liberation can't be bought for filthy lucre. Or at least it can't be measured in terms of money, at least not our own. Our children's prosperity is another matter.

The people of Israel are buying their economic freedom at a high price. How high? Look at State of Israel balance for 2006, page 106, note 14: the government's liabilities regarding pension for its workers. Then look at page 130, which shows National Insurance Institute stats.

You learn that the government's pension liabilities total NIS 367 billion. And that the deficit at the National Insurance Institute at year-end 2005 (there are no figures yet for 2006) was NIS 105 billion. Together that's NIS 472 billion.

Israel is carrying NIS 472 billion worth of actuarial deficit, which is very long-term debt.  Most of that deficit is in the state's liabilities to its workers. In other words, to pay them a pension out of the national budget: these workers had "budgetary pension plans", for which they themselves set aside nothing.

Of the total, NIS 197 billion is liabilities to former government workers who already retired. We might seek comfort in the thought that this debt will largely disappear in 20 years, so at least our children won't have to bear this amount.

But that isn't actually true. Of that, NIS 104 million is owed to ex-soldiers, who retire at age 45. If we add pension liabilities to soldiers still in service, another NIS 57 billion, we get a liability of NIS 160 billion. That is the real price of Israel's defense.

For comparison, 150,000 teachers are entitled to pensions roughly equivalent to what Israel pays a few tens of thousands of ex-soldiers alone.

There is one comfort in this whole debacle of budgetary pensions: at least the problem has been fenced in. For years the deal has been closed to new government workers. In a couple of generations, it will all be behind us.

What remains unresolved is the distress of the National Insurance Institute. Despite the painful cut in its subsidies in 2003, its deficit does nothing but grow. Right now it's at NIS 105 billion, which means that its income won't suffice to finance stipends to the next generations. Mainly, old-age pensions.

That means that either the NII slashes back its support even more, to a level it can sustain, or our NII payments will have to increase. NIS 472 billion is almost double Israel's national budget for the year. The treasury's efforts to save our children from pain, by reforming the pension system and slashing stipends, haven't helped. The debt we are leaving for our children to groan under, is greater than ever before.

It is a good thing we know this now, well in advance. It would be well to continue striking at the problems. Otherwise our dowry to the children will consist of NIS 472 billion. The cost of our economic freedom is the loss of theirs. Have a happy Passover.