Global Policy Forum

By Peter Hirschberg

Close to one in five families below the poverty line. An average of almost one in three children living in poverty. That is a total of 1.32 million people, including 618,000 children in a population of 6.5 million. This is the stark reality of modern-day Israel, as revealed this week in the annual report of the National Insurance Institute, the government body in charge of welfare payments.

Once the most egalitarian society in the developed world, Israel is now among the least so. A society in which the welfare safety net is being shredded even as the country remains mired in its deepest recession ever. Few jobs are on offer, and more and more people desperately need state assistance. The report for 2002 reveals that the number of people living below the poverty line rose by 43,000 (26,000 of them children) from 2001. The number of children below the poverty line grew from 26.9 percent in 2001 to 28.1 percent in 2002.

A report published earlier in the week by the Bank of Israel indicates the trend is long-term: between 1988-2001, the number of families living below the poverty line has risen threefold. The poverty line for a family of four was set in 2002 at 1,000 dollars a month in disposable income, after taxes have been deducted and welfare payments received. The Institute sets the poverty line at 50 percent of the median disposable income in the economy.

Where the poverty line gets drawn can vary dramatically. In the West Bank and Gaza, 60 percent of Palestinians live below a poverty line of 60 dollars a month, according to figures released earlier this year by the World Bank. By comparison, 12.2 percent of U.S. citizens were living below the poverty line in 2002, with the poverty line for a family of four set at 1,500 dollars per month. In Portugal, which has the highest poverty rate in the European Union, one in five people live below the poverty line, with 21 percent of the population surviving on an average of 3,559 dollars a year, according to a European Commission study published in September.

Israel sees itself slipping from its relatively high standards. Welfare Minister Zevulun Orlev called the National Insurance Institute statistics a "red light, a danger to Israeli society." Yohanan Stessman, head of the institute, says that without welfare benefits the number of families living below the poverty line would almost double to more than 600,000. "Without the benefits Israeli society would fall apart and we would reach a point of civil war," he warned.

Opposition politicians attacked the right-wing government of Prime Minister Ariel Sharon, saying that it was poverty and inequality that were becoming the country's most serious strategic threat, not its neighbours. "The government's policies undermine the cohesion of our society," said Eli Yishai, head of the ultra-Orthodox Shas party. "The report's findings are shocking," said the Labour Party's Yitzhak Herzog. "Over the last year, the Sharon government has forced even more children in Israel below the poverty line."

The projections for 2003 are even gloomier: some 70,000 more Israelis are expected to join the ranks of the poor, almost 40,000 of them children. This is due in part to the government's decision to dramatically slash welfare benefits, including a 30 percent cut in income supplements and a 20-25 percent reduction in child allowances.

Finance Minister Benjamin Netanyahu is the prime mover behind this economic policy based in part on trying to force people back into the labour market by cutting welfare benefits. Other measures include privatising state-owned corporations, reducing the top income tax rate, slashing the public sector, and clipping the wings of organised labour. The Finance Minister, who served as prime minister from 1996-99, argues that the expansion of state handouts has spawned a culture of unemployment where people have become used to living off government support. The treasury says benefits have grown 12-fold in the last two decades.

Growth, and a policy of going out to work is needed to extract Israel from this "cycle of poverty", Netanyahu said recently. Government handouts would be a "recipe for economic collapse." But while the government wants people to go out and work, almost none is to be found. With the economy spluttering due in part to the three-year-old Palestinian Intifadah and the worldwide decline in the technology market, few jobs have been created in recent years. Unemployment is above 10 percent. According to the government's own projections, it is expected to cross 11 percent next year.

The vacuum created by the government's decision to shrink its role as a welfare provider is being filled in part by a growing number of soup kitchens and non-profit organisations that provide food for the poor. All these groups report a rapid growth in demand. "The government says welfare benefits are the reason people don't go out to work," Arie Arnon, an economics professor at Ben-Gurion University in the southern city Beersheva told IPS. "But you first need to create work. You have seven years of ongoing economic slowdown and this means a decline in the number of jobs."

What is more, 40 percent of those defined as poor in the report released Thursday do have jobs, but their income is not high enough to push them above the poverty line. "The time has come to tell the truth: there are not a few people who want to lower the salary level in Israel so that it will be possible to compete with the third world," Yuval Elbashan, a leading social activist told a Hebrew daily after the poverty figures were released. "Only this way will rational investors be willing to come to Israel despite the security and diplomatic uncertainty."

Arnon does not buy Netanyahu's argument that cutting social benefits is an economic imperative. The tax reform implemented by the government redistributes two billion shekels (445 million dollars) to the top two percent in Israel, he says. "There are always alternatives. You can always look for other areas to cut. Budgets are a set of priorities."

The Bank of Israel's tight monetary policy, based largely on maintaining high interest rates, has also slowed the economy. Netanyahu is pushing the central bank to cut rates more dramatically. But even if it does, he will still be left trying to unlock an internal contradiction in the worldview he is peddling: he talks of extracting Israel from its ongoing economic decline, yet opposes any major concessions that could revitalise the shattered peace process. Almost all economic observers agree that reviving peace hopes is the key to resuscitating the strangled economy. "The problem is that the geopolitical future here is unclear. Until there is a diplomatic horizon, this won't change," says Arnon.

For all the growing anger among Israel's poorer classes, an effective political framework has yet to be found to channel it. There have been outbursts of social protest in recent months, like the dozens of single mothers who marched on government offices in Jerusalem after their benefits were cut. But they have all lost steam. The opposition Labour Party, still battling to recover from the collapse of the peace process three years ago, does not appear to be the answer. Labour, says Arnon, "doesn't believe in this neo-conservative approach of small government and smashing organised labour, but it is still too identified with economic conservatism to be an alternative."

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