The Welfare System: An Overview

Despite the persistent severity of social problems facing Israel over the past two years, including high rates of poverty and the large number of people in need of social services, Israel’s social spending – which amounts to 17.5% of GDP – has not increased, and remains lower than that of other welfare states. Moreover, this period was characterized by a dearth of new social policy initiatives in the sphere of social security and in social service agencies.

Social investment in Israel

An analysis of social spending according to the division commonly used by researchers in the past decade – social protection (e.g., income support and old age pensions), social investment (e.g., development of individuals’ abilities and skills), and “other expenditures” (such as healthcare system spending) – provides insight into Israel’s approach to social policy.

• Social spending grew in all three categories over the past two decades. Social investment expenditures increased since 2015, particularly for early-childhood daycare centers and the Savings for Every Child program.
• Israel is similar to social democratic welfare states, such as Sweden and Denmark, which emphasize social investment.
• Still, Israel’s spending in this sphere is relatively low, ranging from 6.5% to 8% of GDP, versus over 11% in Denmark and Sweden. The explanation for this is Israel’s low taxes, alongside high expenditures in other areas, such as defense, which translate into relatively low social spending.

Poverty in Israel in international comparison

Israel’s pension income structure and demographic makeup make it difficult for people to get out of poverty. The incidence of poverty has been reduced to a lower degree in Israel than in most other OECD states.

• Israel’s poverty rate, calculated in terms of market income, is lower than the average for other OECD countries (23% versus 28%). However, when the poverty rate is examined in terms of disposable income, Israel tops the chart (together with the US) at 18%, versus 12% for other welfare states.
  • A larger share of the decline in poverty in other developed countries can be attributed to the senior population: while Israel succeeded in lowering the percentage of seniors living in poverty between 2015 and 2017 only from 42% (per market income) to 20% (per disposable income), the percentage of seniors living in poverty in the OECD dropped from 69% to 13% during the same period.
  • Among the non-elderly population, the generosity of social security programs like income support and child benefits is limited. Despite a rise in the average wage and in the poverty line over the past decade, the sum total of these two benefits has remained stable, and its distance from the poverty line has increased.
    National Insurance Institute payments

In 2018, National Insurance benefit spending grew in real terms by nearly 5% compared with the previous year.

• The general disability benefit rose by 8 percentage points during the period 2017 to 2019. Spending on this benefit increased by 16% in real terms, even while the change brought about no increase in the percentage of benefit recipients.
• The fact that the universal Savings for Every Child program, which has been in operation since 2017, does not focus specifically on people living in poverty could potentially weaken its contribution to social mobility: less than a third of parents in the lowest income quintile add money to the state contribution, versus 65% of parents in the highest quintile, who also choose to put the money in higher-yield investment channels.Daycare

• In 2018, Israel passed the Supervision of Daycare Centers Law, which sets standards and conditions for operating daycare facilities, but the conditions for subsidy eligibility and the limited supply of daycare centers leads to a restricted and differential accessibility to daycare.
  • Spending on this item dropped in 2018 after growing over the last decade.
  • If it continues, the limited participation of children, especially Arab Israeli children, in the country’s early childhood education systems will likely have negative consequences for the development of Arab Israelis’ human capital and future prospects for social mobility.