Israel Faces Economic Decline Ahead of Elections, Report Warns
Translated & summarized from Maariv by baba
A report by the Shoresh Institution reveals Israel's declining productivity and economic disparities ahead of elections. Resources are being diverted from growth-oriented investments to subsidies, leading to a significant drop in productivity compared to developed nations. A narrow tax base, heavily reliant on the high-tech sector, and increasing emigration of skilled professionals, particularly doctors, exacerbate the problem. Prof. Ben-David warns that these interconnected issues threaten Israel's future as a developed country, with the window for corrective action narrowing.
The story in 6 lines · by baba
- Israel's productivity has declined significantly compared to G7 nations, falling behind by 15% in 2023.
- A report highlights a diversion of resources from growth investments to subsidies, weakening the economy.
- The high-tech sector's productivity is 22% above the OECD average, while the rest of the workforce lags 24% below.
- Only 20% of workers fund 93% of income tax revenue, with half of workers not reaching the tax threshold.
- Israeli doctors in OECD countries increased from 0.7% in 2000 to 1.9% in 2023, indicating brain drain.
- In 2024, departures from Israel exceeded returns by 160%, highlighting emigration concerns.
A new report from the Shoresh Institution for Economic and Social Research, released just before Israeli elections, highlights concerning trends in the country's economic priorities and productivity. The central claim is that Israel is not merely facing budget limitations but a continuous diversion of resources away from investments that boost growth and productivity towards other subsidies and benefits that do not strengthen the economy's production capacity.
The report refutes the notion that defense spending alone explains the economic gap, stating that civilian expenditure, excluding defense, has been similar to or higher than the OECD average for decades. This shift in priorities has significantly impacted productivity. While Israel's overall productivity was 9% higher than the G7 average in 1975, it was 15% lower by 2023. Similarly, GDP per hour worked, which surpassed all G7 countries in 1972, lagged behind six of them, including Germany and the United States, by 2024.
A stark internal disparity is also evident. The high-tech sector, employing only about 10% of the workforce, shows labor productivity 22% higher than the OECD average. In contrast, the remaining 90% of employees have labor productivity 24% below the OECD average. This imbalance translates into a narrow tax base, with only 20% of workers funding 93% of income tax revenue, while nearly half of workers do not meet the tax threshold.
This situation increases the nation's reliance on a small group of high-income earners, making the economy vulnerable to shocks in the tech sector, reduced investments, or the emigration of skilled workers. The report also points to a growing trend of emigration, noting that 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.
According to Prof. Ben-David, this shrinking human capital base and increasing burden on remaining workers could create a self-accelerating negative cycle. He warns 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, stating that the economic-social threat is a series of interconnected processes endangering Israel's status as a developed country, and the window for change is closing.
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