Government Expenditure on Social Services – 2008

The last three years were characterized by impressive economic expansion, following on the heels of a slowdown during the period 2001-2003, one to which the Israeli government itself contributed by implementing a severely restrictive fiscal policy that curbed public consumption.  This curtailment of public consumption had ramifications for various sectors of the economy.  During the following years, from mid-2003 on, there was a significant upturn as reflected in several economic indicators.  Amongst other things, there was an awakening in the labor market:  in 2002 the number of those employed grew at an annual average rate of 0.9 percent, and since then the rate rose to 3.2 percent.  At the same time the unemployment rate declined by 3.4 percentage points and 2008 is expected to end with an average unemployment rate of 6.3 percent.  Employment rates for the 25-64 age group have been trending upward since 2003, reaching 70 percent in 2007.  Wages have also been rising steadily in real terms since 2003, in both the private and public sectors.

This brisk economic activity led to a rise in tax revenues and to a consequent reduction in the deficit from a high of 5.3 percent in 2003 to one percent in 2006 and to a balanced budget in 2007, with a decline in public debt as a percentage of GDP.  Unfortunately, this improved economic situation did not bring about a social improvement.  The chapters of this year’s Report point to deficiencies in various areas of social concern and highlight the state budget’s failure to adapt to changing social needs.  The report proposes various options for improving matters on the social plane while also encouraging economic growth − with due consideration for time constraints and the difficulties posed by the global and local crises.

This paper appears as a chapter in the Center’s annual publication, Israel’s Social Services 2008, Yaakov Kop (editor).