Haaretz: Why Israelis will never attain Western living standards
Jul.19, 2012 | 8:58 AM–A desperate act by Moshe Silman, a self-employed man who fell into financial straits and found Israel’s welfare state hardly willing to offer assistance, has reminded us just how tight-fisted the system really is.
New comparative data from the Organization for Economic Co-operation and Development reveals that because of the global financial crisis, the developed countries increased welfare spending to 22 percent of GDP. In Israel, that’s 16 percent.
Israel has always lagged behind the rest of the world when it comes to welfare spending. Since 2003, this gap has widened dramatically due to welfare-allowance cuts in Israel coinciding with higher welfare spending in the developed countries.
Israel has the perfect excuse for this historic gap: defense spending.
It bears remembering that defense expenditures include not only direct costs, but also indirect costs, such as interest. Israel pays double the interest rate of the other OECD countries — a high security-risk premium charged by the world. As a result, the state has less spare cash to spend on social welfare.
This is a mathematical fact: The standard of living in Israel will probably never match that of other Western countries, because of the burden of its security expenses.
But an analysis by Professor Momi Dahan, head of the School of Public Policy and Government at Hebrew University, reveals that the security burden is only part of the reason for Israel’s low spending on of welfare. Dahan points out that since 2003 — when then Finance Minister Benjamin Netanyahu instituted a policy of privatization, which reduced the government’s contribution to GDP — government spending has declined equally on interest, security and civilian expenses.
The reduction of government spending, especially on aid to vulnerable segments of the population, marked a turning point in the government’s policies (spending on security and interest has been declining since the 1980s).
The exception to this pattern is that the spending cuts on welfare, begun in 2003, where the result of Netanyahu’s deliberate economic policy was to reduce government involvement in the economy. Therefore, together with cutting government expenditure, he also lowered the state’s tax revenues through tax cuts…Read More>>
