Economic Warnings Issued Before Israeli Elections Highlight National Priorities
Translated & summarized from Maariv by baba
A report by the Shoresh Institution warns that Israel is prioritizing subsidies over growth-enhancing investments, leading to declining productivity and a widening internal economic gap. Productivity has fallen significantly compared to G7 nations since the 1970s, and a small percentage of high-earning workers fund most income tax. The report also highlights a growing trend of Israelis, particularly skilled professionals, emigrating, which Professor Ben-David warns could accelerate and threaten Israel's developed status.
The story in 6 lines · by baba
- Israel is diverting resources from growth investments to subsidies, negatively impacting productivity, according to the Shoresh Institution.
- Israeli productivity has declined significantly, falling below G7 averages in recent years.
- A large internal economic gap exists, with high-tech workers having much higher productivity than others.
- A narrow tax base relies heavily on a small group of high earners, increasing economic vulnerability.
- There is a growing trend of Israelis emigrating, with departures significantly exceeding returns in 2024.
- Professor Ben-David warns of accelerating negative trends that threaten Israel's status as a developed nation.
A new report from the Shoresh Institution for Economic and Social Research warns that Israel is diverting resources away from growth-driving investments towards other subsidies and benefits, a trend that predates the upcoming elections. The report argues that Israel's economic challenges are not solely due to budget limitations but stem from a persistent shift of funds that do not enhance the economy's production capacity.
Contrary to the belief that defense spending is the primary cause, the report indicates that civilian expenditures, excluding defense, have been comparable to or higher than the OECD average for decades. This misallocation of resources has significantly impacted productivity. While Israel's productivity was 9% higher than the G7 average in 1975, it fell to 15% below by 2023. Similarly, GDP per hour worked, which surpassed all G7 nations in 1972, lagged behind six of them, including Germany and the US, in 2024.
The report also highlights a severe internal economic disparity. The high-tech sector, employing only 10% of the workforce, boasts productivity 22% above the OECD average. In contrast, the remaining 90% of employees exhibit productivity 24% below the OECD average. This imbalance results in a narrow tax base, with just 20% of workers funding 93% of income tax revenue, while nearly half of employees do not meet the tax threshold.
This situation increases national reliance on a small group of high-earning individuals, making the economy vulnerable to shocks in the tech sector, decreased investment, or the emigration of skilled workers. The report also notes a growing trend of Israelis leaving the country. The proportion 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 Ben-David warns that as the human capital base shrinks and the burden on remaining workers increases, this process could accelerate. He states that the upcoming elections will determine who governs Israel, but the more profound question is what kind of country the government will lead in the future. He emphasizes that this is not a left-right issue but one of priorities that will shape the nation's destiny, warning that the economic-social threat is a self-reinforcing cycle that jeopardizes Israel's status as a developed nation, and the window for change is closing.
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