Report: Israel has worst poverty in OECD

Poverty Photo: Tamar Matsafi

Taub Center: Israel is in last place in the OECD in after-tax disposable income because of poverty in the Arab and ultra-orthodox sectors.

The Taub Center for Social Policy Studies in Israel today published its 2017 report on Israel. The reports states that despite increased government social spending on items such as health, education, and welfare, poverty and inequality remains among the highest in the developed world. According to the report, one of the reasons for this is the large population groups having both high fertility rates and low education and rates of participation in the labor force. Another reason is the relatively low tax rates in Israel.

The report explains that the poverty rate according to income in Israel is lower than in most OECD countries before the effect of taxes and transfer allowances from the state, but in last place in disposable income for household use, together with Mexico.

The difference between the poverty rates measured in income in disposable income shows the state's success in reducing poverty through taxation and the welfare system, an index in which Israel is rated fifth from the bottom. In all five countries in which the differences are lower, the tax rates are especially low, which limits their ability to reduce poverty. The combination of population groups with low human capital, low rates of labor force participation, and large families makes the war against poverty in Israel particularly challenging.

The report also shows that the rates of poverty measured in income have begun to fall, but not the rates according to disposable income. In a comparison according to income, poverty rates in Israel are lower than in most OECD countries, and have been declining, especially among older population groups. The authors of the report attribute this to an increase in the retirement age, which has caused people to work to a later age.

In disposable income, however, the poverty rates have barely changed for more than a decade. Among the working age population, it appears that the poverty rates measured in disposable income have not changed, but the composition of the poor population has changed significantly. The proportion of poor people who are Arabs or haredim (ultra-Orthodox Jews) rose from 44% in 2002 to 57% in 2015. This increase deviates from the rate of increase in these groups' proportion in the general population. Another figure arising from the report is that the recommendations of the Elalouf Committee for combatting poverty were only partially implemented. In 2014, the Committee for the War Against Poverty in Israel (the Elalouf Committee) presented a comprehensive plan for lowering the poverty rate to the OECD average in a decade. The cost of the plan was estimated at NIS 7.4 billion a year. In 2015, an election year, the state implemented almost none of the recommendations, and actually added only NIS 434 million to the budget in the relevant items.

NIS 1.9 billion was added to the budget in 2016 - 26% of the recommended annual addition. Various plans were expanded following the Committee's recommendations, such as income supplements for senior citizens. At the same time, however, the government did not implement some of the Committee's main recommendations. The amount of added spending for the war against poverty is expected to reach NIS 4 billion in 2017 (54% of the spending recommended by the Elalouf Committee). Most of the added budget in 2017 will be for the child savings program, negative income tax, and a further increase in income supplements for senior citizens.

The government budget for social spending is the highest it has been since the beginning of the century. Social spending (including education, health, and welfare) totaled NIS 192 billion in 2015, the highest since 2000. Welfare spending totaled NIS 94 billion, 21% of total government spending.

90% of social security spending: National Insurance allowances

A large majority of social security spending consists of allowances paid by the National Insurance Institute, but the proportion of negative income tax in spending is increasing. 90% of social security spending consists of allowances paid by the National Insurance Institute. Some of these allowances are universal, and some are exclusively for people with low incomes. Almost no one is eligible for none of the allowances throughout his entire life. Another item included in social security spending is negative income tax - a work grant that was introduced in Israel in 2007.

This grant is paid to employed people with low incomes, especially people with families. It is designed to decrease poverty and help lower income people without affecting the incentive to work among those eligible. In 2014, the number of those eligible for a work grant was 500,275, reflected a 70% uptake rate. Spending on this item has grown over the years, but has remained quite small, totaling NIS 3.1 billion in 2015 – 6.1% of total social security spending.

Most of the increase in the social budget was in allowances, especially as a result of demographic changes, such as the ageing of the population, and for greater spending for people with disabilities. Spending on items such as institutional treatment and welfare services, on the other hand, has declined over the years. 80% of the Ministry of Labor and Social Welfare's budget was allocated for outsourcing, and nearly all of the outsourcing payments were to established providers, although these accounted for only 56% of all providers.

The percentage of home ownership households headed by someone age 66 or older was 77%, and over half of this population had income from an occupational pension. The proportion of non-home-owning households with no income from an occupational pension fell from 20% in 2003 to 16% in 2015. The report also stated that income of Arabs and adult immigrants was lower than that of long-time Jewish residents.

The employment rate among Jewish women was the second highest among the OECD countries. The report also shows that the employment rate among women was higher than ever, and that women who work do so closer to home. The employment rate among women in Israel reached an all-time high of 74.3% in Israel in 2014, a level that was repeated in 2015, compared with the OECD average of 67.4%. The employment rate among Jewish women is especially high, but the percentage of Arab women who worked was lower than the employment rate for women in all of the OECD countries. The employment rate among men is below the OECD average, but the gap is narrowing.

Another figure cited by the report concerns computer skills of haredi and Arab workers. These workers had relative poor computer skills, but the skills of non-haredi Jewish workers were higher than in other countries.

The gap between the real wage and productivity has narrowed since 2014. It appears that the source of the gap is the Consumer Price Index, which affects real wages, and which has risen at a faster pace than the Producer Price Index, a reflection of the prices of all goods and services in the economy. The purchasing power of workers has therefore been eroded. The real wage rose over the past two years, but it appears that the increase resulted from closing the price gap, and is not expected to persist.

Published by Globes [online], Israel Business News - www.globes-online.com - on May 28, 2017

© Copyright of Globes Publisher Itonut (1983) Ltd. 2017

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Poverty Photo: Tamar Matsafi
Poverty Photo: Tamar Matsafi
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