Until the past decade, the largest aggregate in the budget – in fact, the dominant one – was for defense. In the 1980s, the defense budget accounted for almost half of total government spending.
Often, during the fiscal debates, when the need for substantial cutbacks in the budget arose (and when was this not the case), economists demanded reductions in defense spending. In these cases, the point of departure was not necessarily the idea that defense spending was too high in view of military needs. The point of departure was different: because the experts have determine that the budget must be cut, and because even a huge reduction in small items will not yield the desired arithmetic results, there is no alternative to trimming the largest expenditure component, the defense budget. Thus, it was the relative size of the defense budget that placed it in the budget – slashers’ crosshairs. During the past few years, as the data in this report show, these two components – social services and defense – have exchanged their relative position, and social spending now occupies the slot once held by the defense budget. As a result, the social-services budget has also replaced the defense budget as the prime target whenever the need for cutbacks arises (and, as we have said, when is it otherwise). This is evidently the fate of any item that exceeds 50 percent of the total budget. These remarks should not be construed as deprecating the concept of “budget constraint.” It should be borne in mind that social expenditure is substantial not only as a percentage of the budget; it also consumes a growing share of the total national product. In the past few years, social-service expenditure has accounted for more than one-fifth of the total output of the Israeli economy (Gross Domestic Product). Therefore, setting the size of the social-services sector is – and must be – an inseparable part of economic decision-making. Hence an assessment of social trends requires a thorough scrutiny of economic policy, as this policy in itself dictates major elements of the welfare system. If, for example, we examine the changes in income distribution within society, we find that the main factor in inequality derives from disparities in wages and economic income. One cannot indict state intervention mechanisms for failing to narrow the inequality with greater vigor. The gulfs stemming from the labor market are too vast for a transfer-payment policy to eradicate or rectify to the extent required. However, there is good reason to examine the extent to which overall economic policy contributes, from the outset, to the formation of these disparities.