Poverty Report '06

After years of rising steadily, Israel's poverty rate finally dropped. True, poverty has not been eradicated, but it's still a change in direction: from increase to decrease - and that's good news. The rate of families living beneath the poverty line went down from 20.6 percent in 2005 to 20 percent in 2006, and there are many reasons for this.

First of all, the substantial decline in poverty among the elderly is due to the rise in old-age stipends. Secondly, the rise in child stipends for families with three children. Third, lower income tax rates, and fourth: the economic growth that brought higher wages and employment.

The poverty report indicates a drop in the absolute number of poor families, from 411,000 families in 2005 to 404,000 in 2006. You might expect a corresponding drop in the number of poor individuals and the number of poor children, but their numbers have actually grown. The mystery is solved by the explanation that the poor populace has fewer elderly families and more families with numerous children.

For decades, from the 1970s to 2003, the Israeli government tried to combat poverty by raising stipends. Year after year the child allowances and income supplements were raised - but not only did poverty not abate, it actually grew worse. A "poverty trap" had been laid; a situation in which it did not pay to go to work.

The government changed course in 2003. It cut stipends, slashed the budget and lowered taxes to encourage people to find employment. It also carried out reforms and privatizations. We saw the result in an annual growth rate of 5 percent for the fourth year running, lower unemployment, higher wages and the entry of 372,000 people into the workforce.

But growth brings more than new jobs. It also increases the government's tax revenue, thereby enabling it to help those who cannot work. Efforts included increasing the old-age allowance and aid to the sick, disabled and weak - who are not part of the workforce.

The higher tax revenue also enables greater investment in vocational training, subsidized day care centers, and public transportation discounts - to encourage people to go to work.

In other words, economic growth is the prerequisite for reducing poverty - as the 2006 figures demonstrated.

With the continued growth in 2007, the poverty figures published in a year for 2007 will show a further reduction in the percentage of poor families.