Israeli Finance Ministry Warns Economic Harm and Tax Hikes from Torah Study Basic Law

The Israeli Finance Ministry opposes the proposed Basic Law: Torah Study, cautioning that it could cause significant economic damage due to increased reserve military service burdens and incentives discouraging ultra-Orthodox men from joining the workforce. The ministry warns that if current trends continue, the government will need to raise taxes by 16% within 30 years to maintain current public service levels.

The Basic Law, recently approved in a preliminary Knesset reading, aims to enshrine Torah study as a fundamental value in Israel, counterbalancing the constitutional right to equality. It seeks to legally justify exemptions from military conscription for Torah scholars. The original draft described Torah learners as "serving a significant service to the State of Israel and the Jewish people," a phrase that remains in explanatory notes.

The Finance Ministry's legal advisor highlighted that while the law's budgetary cost is hard to quantify, it could require substantial resource allocations. The law might reduce the number of ultra-Orthodox men enlisting in the Israel Defense Forces (IDF), increasing reserve duty burdens on others and exacerbating economic costs. The ministry also noted that the law could strengthen incentives that discourage ultra-Orthodox men from workforce integration, where employment rates have stagnated at about 50% over the past decade.

The ministry estimates that the economic cost of reserve service for one soldier averages 50,000 shekels per month, with cumulative costs from 2023 to 2026 expected to reach approximately 170 billion shekels. Government expenses for reserve service during this period are projected at 115 billion shekels. With the ultra-Orthodox population expected to comprise about one-third of Israel's population by 2065, failure to increase their employment rate would necessitate a 16% rise in direct taxes to sustain current service levels without increasing the budget deficit.

The ministry attributes low ultra-Orthodox employment partly to economic incentives that provide government assistance without requiring workforce participation, sometimes reducing benefits upon employment. These benefits, amounting to thousands of shekels monthly per household, create an alternative income that hinders labor market integration. The Basic Law debate continues amid concerns about its fiscal and social implications.