A helping hand: social welfare spending in Israel
Author: Taub Center Staff Bulletin Articles

With Rosh Hashanah just around the corner, it’s a good time to take a close look at trends in government spending for Israel’s most vulnerable populations. As part of the Taub Center’s State of the Nation Report 2015, Principal Researcher John Gal and Researcher Shavit Madhala-Brik analyzed Israel’s social welfare expenditures to see which areas are receiving more or less government funding than in the past and to explore possible reasons for these trends.

Government social welfare expenditures in Israel come in two forms: first, through cash transfers intended to ensure the social security of all residents of the state, and second, through services targeting disadvantaged and vulnerable populations. Israel’s public expenditure on welfare was about 86 billion shekels (22.8 billion USD) in 2014. As can be seen in the graph below, this expenditure has shown slow, steady growth since the middle of the past decade, principally due to an increase in state old-age pensions (cash transfers) provided through Israel’s social security programs. By contrast, the expenditure on other social service programs dropped slightly between 2000 and 2014.

social-welfare-expenditure

About 80 percent of the overall expenditure on welfare is devoted to social security, which includes a wide range of programs, primarily distributing cash benefits, aimed at providing a safety net for those with little or no income from labor, or for those with additional expenses caused by a variety of circumstances. This category of social welfare expenditure is mostly comprised of allowances from the National Insurance Institute but also encompasses expenditures for Holocaust survivors and for the rehabilitation of disabled veterans and payments to bereaved families.

The vast majority – 90 percent – of social security expenditure is for National Insurance benefits. These benefits, both the universal ones and those targeted to low income individuals, reach a very large percentage of Israelis and include such benefits as general disability, work injury, unemployment, and maternity. The largest share of National Insurance benefits goes toward funding old-age and survivor pensions and long-term nursing care. There has been a clear upward trend in the share of spending channeled to the elderly population who received these benefits, which is likely a reflection of an aging Israeli society. The number of old-age and survivor pension recipients rose from 657,000 in 2000 to 868,000 in 2014 (a 32 percent increase), while the number of long-term care benefit recipients rose during this period from 96,000 to 159,000 (a 66 percent increase). In contrast, the figure below shows that National Insurance spending on child allowances has decreased due to a sharp decrease in the value of each allowance (though it rose again in mid-2015 due to policy changes).

national-insurance-institute-transfers-for-various-allowances

A dramatic rise in spending on pensions and benefits for the Holocaust survivor population began in 2008. The increase was sparked by amendments to the law that allowed disabled Holocaust survivors who had not filed claims in the past to do so, and expanded eligibility for survivor benefits. However, due to the substantial increase of 28,000 eligible survivors, the budget per eligible person decreased between 2008 and 2010.

In addition to social security benefits, the social services element of social welfare expenditures is designed to further social objectives, such as assisting new immigrants or people with physical or mental disabilities. These programs offer diverse social services that are provided by the state, local authorities, or external entities, with state funding or supervision. The services are administered by the Ministry of Social Affairs and Social Services, Ministry of Economy (spending on employment and early childhood), the Ministry of Housing, and the Ministry of Immigrant Absorption.

distribution-of-social-welfare-expenditure

The Ministry of Social Affairs and Social Services provides personal social services to vulnerable population groups. Although total Ministry of Social Affairs and Social Services expenditure accounts for just 1.2 percent of total government expenditure, the Ministry’s budget as a percentage of GDP has increased in recent years. This trend reflects a major increase in the Ministry budget, due, in particular, to an increase in the number of households served by the Ministry: 331,000 households served in 2000 compared to 464,000 in 2014 – or 20 percent of all Israeli households.

The Ministry of Economy has made a special effort in recent years to bring specific target populations, such as Arab Israelis, Haredim and people with disabilities, into the labor market. Despite this effort, Israel invests less than other welfare states to encourage overall employment rates—an argument raised in OECD reports on employment in Israel. Early childcare, however, is a different story. This was a major topic of discussion during the 2011 social justice protests and expansion of government-sponsored early childhood education was included in the recommendations of the Trajtenberg Committee. Accordingly, spending in this area has increased in recent years. Government expenditure for the Day Care Centers Department amounted to one billion shekels in 2014. In particular, there was a 40 percent increase in expenditure related to subsidizing the fees paid by working parents for their children’s afternoon programs, day care centers and family child care.

Despite intensive public preoccupation with the issue of housing in recent years, government expenditures by the Ministry of Housing have declined. A dramatic contraction of the public housing supply and cutbacks in rent subsidies are factors that may explain the downturn in spending.  Instead the government has sought to deal with the housing shortage in Israel by increasing private housing stock by lowering the cost of public land and enforcing lower prices for houses sold on these lots.

The budget of the Ministry of Immigrant Absorption traditionally accounts for the smallest share of Israel’s social welfare expenditure. This trend was reinforced over the past decade, with the number of immigrants to Israel declining sharply.

In conclusion, Israel’s public expenditure on social welfare has been growing since the middle of the last decade, due primarily to increased spending on social security. The changes in expenditure stem mostly from demographic changes, while a small portion is due to legislative change and changing demand for public services.

Looking to the future, the Israeli government will be introducing new child development accounts in January 2017. This program will put aside 50 shekels every month for each Israeli child until the age of 18. Government plans for 2017 also include raising cash benefits for the elderly and adding 300 million shekels to the funding of disability benefits.