Cut Child Allowances, Nix Tax Break on Pension Savings, OECD Counsels Israel

Israel will be the poorest of the 30 nations comprising the Organization of Economic Cooperation and Development, assuming it joins this year, says the OECD's report on Israel - and it has several suggestions, some revolutionary, for how to amend that situation.

The report states that 19.9% of Israel's population is categorized as "poor," which is more than in Mexico (18.4%), Turkey (17.5%) or the U.S. (17.1%). The average poverty level for the OECD is just 10.9%, the paper states.

Despite the confidence in Jerusalem, Israel's addition isn't a done deal, and the proportion of poverty is an obstacle. And why is poverty so pervasive? Because Israel also has the highest rate of inequality, explains the OECD.

Israel's average is also impacted negatively by the high proportion of poverty among Haredim (60%) and Arabs (50%). Both sectors are characterized by a low proportion of working adults, relatively low salaries when they do work, and high birth rates, which leads to the statistic that a third of Israeli children are categorized as poor, compared with an average of 12% for the OECD.

The report also states that 25% of Israel's workers receive low pay, which is about the same proportion as in the other OECD member nations. But among Haredim and Arabs, a majority of adults receive low pay.

Pay in the high-tech sector is relatively generous, says the OECD report, but it employs only 7% of Israel's workforce.

Its report also says that inequality is worsening. Since 2000 the rate of poverty among the secular Jewish population has diminished, but in parallel, among Haredim and Arabs it increased by 20%.


The OECD made a number of recommendations, some of which are revolutionary.

1 Enforce labor laws: Israel has one of the smallest numbers of labor law inspectors per capita in the OECD. It advises Israel to beef up budgets for enforcement and for labor tribunals, and to increase fines for lawbreaking employers.

2 Reverse discrimination in favor of Ethiopians and Arabs: Israel's labor market discriminates against both these sectors of society, and the civil service should adopt reverse discrimination in their favor. It also thinks the authority in charge of labor equality should become more efficient.

3 Expand the round table: Only the Histadrut labor federation and the big manufacturers are represented at the government's round-table economic talks. Embrace representatives of weaker workers and small businesses not belonging to the Histadrut.

4 Expand the Wisconsin employment encouragement program, increase the Employment Service budget. Israel invests a sixth of the average amount invested by other OECD members in encouraging employment. Each officer at the Employment Service handles 350 cases, which is too many for efficiency. The OECD applauds the Wisconsin program and urges that it be expanded to all Israel, but it lists changes needed. One is the absence of competition between the program's operators, which are private companies. Also, the Employment Service needs more budgets for training and daycare.

5 Cut child allowances: For all, but mainly, for families where nobody works. Divert the money saved on allowances to paying negative income tax to poor workers, and increasing daycare support for poor workers.

6 Enforce the rules against employing foreign workers: There are a lot of illegally employed foreign workers, the OECD says, which hurts uneducated Israelis. Enforce the law; enable workers to be imported through the United Nations agencies; and make employers prove that first they made every effort to hire Israelis. The report also urges adoption of a policy for legal immigration by foreign workers, which would mean that some would become citizens.

7 Improve old-age stipends, raise retirement age for women to 67: 23% of Israel's elderly are poor, compared with 13% in other OECD nations. Giving these elderly more money is the best way to combat poverty among them, says the organization. It feels the number of people receiving income supplements is too small because means testing is too harsh, and urges that Israel not deny assistance to elderly people who own cars. And, raise the retirement age for women from 65 to 67.

8 Cancel tax breaks on pension savings: Imposing compulsory pension savings was a good move, applauds the OECD: now two-thirds of workers have savings, up from half. But it warns that Israel's support system for pension savings is unequal: the tax breaks on pension savings benefit mainly the rich. At present they apply to the 15% of pay people must set aside under the law; the OECD feels the breaks should apply only to sums above that that are voluntarily set aside.

9 Changes in the welfare, tax system: Not only is Israeli welfare support stingy (Israel spends 16% of its budget on welfare, compared with an average of 21% in the OECD members), it's also inefficient. Israel's welfare spending is also inefficient. Israel needs to improve its methods of means testing, use supplements in ways that encourage people to work, ensure that only the really needy receive state help, and devote more money to programs supporting work, such as daycare. And while about it, simply, spend more on welfare, urges the OECD.