Report Warns of Economic Crisis as Israel Diverts Funds from Growth
Translated & summarized from Maariv by baba
A new report by the Taub Center indicates Israel is heading towards an economic crisis, with 37.5 billion shekels diverted to Haredi sector subsidies while labor productivity declines. This spending exceeds that on hospitals and universities combined. The report warns that resource allocation away from growth-oriented investments and a shrinking tax base, coupled with a significant emigration of skilled workers, threatens Israel's future as a developed nation.
The story in 5 lines · by baba
- Israel allocated 37.5 billion shekels to Haredi sector benefits, exceeding combined spending on hospitals and universities.
- Labor productivity in Israel has declined significantly compared to G7 nations.
- A narrow tax base means 20% of workers fund 93% of income tax revenue.
- Skilled workers are emigrating, with departures exceeding returns by 160% in 2024.
- The report warns of an accelerating economic crisis threatening Israel's developed nation status.
A new report from the Taub Center reveals that Israel has allocated 37.5 billion shekels towards benefits and subsidies for the Haredi sector, while labor productivity stagnates and the tax base shrinks. This sum exceeds the combined public expenditure on hospitals, universities, and colleges, which totaled approximately 26.7 billion shekels. The report's authors highlight that this significant difference, about 10.8 billion shekels, could fund eight additional hospitals or ten more research universities.
The central argument of the report is that Israel faces not just a budget constraint but a continuous diversion of resources away from growth-enhancing investments towards support and benefits that do not strengthen the economy's productive capacity. The report asserts that defense spending alone does not explain this disparity, noting that for decades, Israel's civilian expenditure, excluding defense, has been similar to or higher than the OECD average.
This shift in priorities is reflected in productivity. While Israel initially closed the gap with developed nations, by 2023, its overall productivity was 15% lower than the G7 average, a stark contrast to 1975 when it was 9% higher. Labor productivity has also declined significantly, with Israel lagging behind six of the seven G7 countries in GDP per hour worked by 2024.
The report also points to a severe internal economic disparity. The high-tech sector, employing only 10% of the workforce, shows labor productivity 22% above the OECD average. Conversely, the remaining 90% of employees have labor productivity 24% below the OECD average. This imbalance results in a narrow tax base, with only 20% of workers funding 93% of income tax revenue, while about half of workers do not meet the tax threshold.
This situation increases the economy's reliance on a small group of high-income earners and makes it vulnerable to shocks in the tech sector, reduced investments, or the emigration of skilled workers. The report also notes a growing trend of Israelis leaving the country. The number of Israeli doctors in OECD countries (excluding the US) relative to those in Israel rose from 0.7% in 2000 to 1.9% in 2023. In 2024, 35,993 Israelis left the country, while only 13,820 returned, a 160% higher departure rate. Professor Dan Ben-David warns that as the human capital base shrinks and the burden on remaining workers increases, this process could accelerate, threatening Israel's status as a developed nation.