Cuts in allowances have brought some unemployed people back to the labor market, but have also increased the number of poor families in the short term, and widened the income gap in Israel, the Bank of Israel annual report for 2004 published today found.
Over the past five years, the poverty rate climbed from 17.8% to 19.3% among families, 18.8% to 22.4% in numbers of people, and from 24.9% to 30.8% in numbers of children.
The report also indicates that not everyone is benefiting from economic growth, which is much greater in the technology industries. Demand in unskilled labor-intensive and low-paid sectors continues to be low.
The report criticized the indiscriminate cuts in allowances, which did not distinguish between those unable to work and those deliberately refraining from working. The cut in transfer payments consequently increased the number of families below in the poverty line in the short term.
The report proposed setting a quantitative target for reducing poverty over the next ten years, subsidizing low-paid workers, instituting selective transfer payments and linking them to the median wage (rather than to the Consumer Price Index), and introducing a negative income tax.
According to the report, employment did rise in 2004, but most new jobs were part-time and low-paid. 84% of new jobs last year were part-time: 77% of new jobs among men, and 94% among women.
Cuts in allowances pushed Israelis back into the labor market in order to add to their income. 6,000 new jobs among Israelis last year were babysitters and household helpers. Israeli Arabs took jobs in construction.
The report implies that the health crisis was created by cuts in public spending on health over the past two years.
In the report, the Bank of Israel criticized further tax cuts. Estimates are that a tax cut amounting to 1% of GDP increases the budget deficit by 0.7% of GDP in the first year of its implementation.
Without further tax cuts, public debt is expected to fall from 105% to 90% of GDP by 2010. On the other hand, if taxes are cut by 1.5% of GDP, public debt will be 96% of GDP, assuming average annual growth of 4% through 2010. If another recession occurs, the ratio will remain above 100%.
Central Bureau of Statistics figures indicate that one million wage-earners in Israel are paid less than NIS 5,000 per month.
Published by Globes [online], Israel business news - www.globes.co.il - on April 4, 2005