Prof. Nathan Sussman, Director of the Bank of Israel’s Research Department, spoke today at the Conference marking International Human Rights Day held in the Knesset. Following are the main points of his remarks.


In my remarks, I will present several features of Israel’s economy, compared to abroad, that will help to highlight various components of budget policy in Israel and enable us to determine if the 2017-2018 budget can be described as a socially oriented budget. What is a socially oriented budget? It’s a budget that deals with reducing inequality in the present, and concurrently with supporting inclusive growth that improves the standard of living for all Israeli citizens.


An examination of inequality by analyzing Gini Indices indicates that inequality in economic income in Israel is similar to the OECD average. However, the effect of policy, and particularly the effect of transfer payments, is low in an international comparison. This leads to disposable-income inequality being markedly higher than the OECD average. One of the main issues when examining inclusive growth in Israel is education. In this area we see that Israeli students’ educational achievements are low compared with the OECD—the grades on the 2015 PISA tests, in both science and math, are lower than the OECD average. The gaps in achievement in those subjects in Israeli society are markedly higher than other OECD countries—in fact the gap in Israel is the highest of all the countries. An examination of the budget expenditure on education, by comparing annual expenditure per student, in elementary as well as junior high and high school, indicates that the annual expenditure per student is low relative to the OECD, and thus is in line with Israel’s position in terms of achievements. When examining the skills of workers who are already in Israel’s labor market, we see that the achievements of 16–65 year olds in the international survey of adult skills (PIAAC) are also low compared with achievements in other OECD countries. In this case as well, the budget expenditure on professional training, in terms of GDP, is lower in Israel than in most OECD countries, and thus is consistent with the relatively low skills level.

In conclusion, after an analysis of the 2017-2018 budget’s dealing with social gaps, it can be said that it does contain steps to reduce inequality. With that, it seems that the growth rate of the Ministry of Education will be lower than the growth rate of GDP, so that the share of that budget in GDP is expected to decline in the coming two years, but with no change in real expenditure per child of school age. The budgets for professional training, as well, which support the reduction of inequality in the medium term, are low in international comparison. One of the tools for dealing with this is a change in the order of priorities in the education budget, which will assist in reducing the gaps between various population groups.