NII Poverty Report / Growth Turned Poverty Around

After many years of increasing poverty, the dangerous trend was finally curbed. There is even a slight reverse.

The percentage of families with income below the poverty line dripped from 20.6 percent in 2005 to 20.2 percent in the first half of 2006. The growth in poverty among children was curtailed, and poverty among the elderly began to drop.

The National Insurance Institute hastened to attribute the welcome changes to boosts in child allowances and old-age stipends in 2006. NII Director General Yigal Ben Shalom even said it proves the importance of continuing to boost stipends, in order to fight poverty. Is that so?

So the increase in old-age stipends (an important and correct step) impacted the drop in the poverty rate among the elderly. But it was not the teeny increase in stipends that brought about the change. Most of the revolution stemmed from the economic program initiated in 2003.

Presented then by Benjamin Netanyahu, the plan included budget cuts, cutbacks in benefits, cutting tax and substantial reforms. Those who call themselves "socially oriented" said then the program would create disaster. Amir Peretz and many others said it would deepen recession, increase unemployment from 11 percent to 15 percent and increase the poverty rate. Peretz & Co. proposed the opposite plan: raising taxes, mandatory levies and increasing government spending.

But Bibi's plan was implemented, and we are now harvesting the fruits.

Rapid economic growth started in 2004, but then they said only the technology sector was growing. Now all the sectors are growing - and economic growth is the central component that will allow a reduction in poverty.

Growth boosted demand for employees, so unemployment didn't just not rise, it dropped to 8.5 percent, with 250,000 Israelis joining the workforce. Real wages increased, too, and that also reduces poverty.

At the start of the process, poverty increased. That was the necessity of reality, because when you make sharp cuts in child allowances and guaranteed income, obviously poverty increases among families that subsist on those stipends. But the rest followed: the economy took off, tax on labor was cut, investments increased - and growth began. And then those people who wanted to work, found work and left the life of the stipend. Their dignity restored, they also left the poverty cycle.

Because it is important to remember that a family living off guaranteed income is getting an average NIS 2,000, while the minimum wage is NIS 3,585. And when you work, you can get ahead. The fact is that in 2003, 155,000 families lived on guaranteed income - a huge, scary number - and now that figure stands at 128,000.

Rapid growth enabled another important process: the minimum wage hike - Amir Peretz's important contribution. When growth continues in 2007, it will be possible to raise the minimum wage again, and the entire lower section of the salary scale with it, which will bring thousands more out of the poverty cycle.

The Wisconsin Plan, too, contributed a little to reducing poverty. It brought thousands back into the labor market. Thousands more received vocational training, and a few thousand more are doing community service until the program finds them suitable employment.

So it is not the tiny increase in stipends that reversed the trend. Growth and the transition from stipends to work, are what brought about the revolution.

And if we have a little luck, in another half year, when NII publishes its next report, we will learn that poverty didn't drop by four tenths of a percent, but by far more.