'Israel needs NIS 171 billion to match Western standards'

The horrific events of October 7 and the government’s abysmal initial response to them has starkly underlined the need for substantial reform in Israel’s civil service infrastructure.

The lack of effective government response has led to the rise of volunteer initiatives, underscoring Israeli society’s resilience, previously demonstrated during challenges like the COVID pandemic. However, it also highlighted the need for “immediate and comprehensive preparation” to rebuild the civil system.

The “Arlozorov Forum” think tank recognized the need for a structured national plan. Two members of the forum, Amit Ben-Tzur, director of the Yesodot Institute, and Yoni Ben Basat, head of the economics and social services research department, developed “The Day After Project,” a wide-ranging plan that provides a macroeconomic view of today’s civil services and government policy, and what needs to be changed.

They delved into data published by the OECD about the budgets of its member countries, analyzing and categorizing the findings, selecting specific ministries. They also examined where Israel stands against each parameter, using Israeli academic research, to identify the main problems our country has to deal with.

“The first thing we checked is whether we are different from other countries and whether this is a failure of the last government or a continuing failure that has intensified,” Ben-Tzur said.

“This is not a failure that started in January 2023 with the current government, but goes back 20 years, to 2003,” he said. “Benjamin Netanyahu was then the finance minister who led the narrative of ‘the fat man’ – the public sector – on the back of ‘the thin man,’ the business sector. The goal was to reduce and streamline the public sector, giving more room for the business sector.”

Ben Basat added that, “Not only did the security concept fail, but so did the social concept, which Netanyahu led, even though there is no reason for competition between the sectors. A policy can be maintained where the private market flourishes alongside an efficient public sector.”

Ben-Tzur elaborated: “For the private sector to be innovative, it must have a public sector that invests in it, a supportive environment in which businesses can grow, and a public sector that takes risks that the private sector wouldn’t dream of taking. Israeli hi-tech was established by government venture capital funds and the chief scientist. Only cooperation can lead to such achievements.”

Countries that succeeded in this integration – such as Austria, Belgium, Finland, the Netherlands, and Sweden – prove that this is a winning formula. These are all capitalist, competitive countries with high per capita output and a large public sector.

Private and public sectors must work together

WHEN THEY talk about a large public sector, Ben-Tzur and Ben Basat don’t mean a government with 38 ministers and sub-ministries, as exists nowadays.

They haven’t measured how many ministers exist, but how much the government invests in civil services, as well as the amount invested in the private citizen’s needs, compared to the size of the economy and the output.

Ben Basat explained that before 2003, “our conceptual breaking point was that Israel grazed the OECD average regarding investment in civil services, which stood at 34% of the output, and the OECD’s at 36%. Today, our investment has significantly shrunk to 31.4% of the output, while the civilian investment in OECD countries has dramatically increased to 41.3%. “When we translate this into numbers,” he said, “this gap amounts to NIS 171 billion.”

Ben-Tzur: “Our budget needs to be much larger than it is today: instead of NIS 510b., NIS 680b. NIS 171b. is not a sacred number, but it gives an order of magnitude of the gap; it’s not a billion here or there.

“So we wake up after October 7 and find that our mental health system is collapsing and services aren’t functioning, in addition to shortages of teachers and police, and traffic jams, failed public transportation, and an unchanged gap between the center and the periphery,” he said.

Solution to the problem

ADDRESSING THE fact that Israel has massive security expenses that OECD countries don’t have, Ben-Tzur answered, “If we remove security expenses, we get a shortfall of NIS 90b. The problem is, even if we channel this money into the public sector, it won’t be able to utilize it. If we lack child psychologists or other professionals, it won’t happen overnight.

“We need to build this through infrastructure, support teams, and universities; it has to be spread over several years,” he said. “To close this gap, we need to start tomorrow morning, deciding to increase the investment by 1% every year.

“The State of Israel has built giant enterprises, and our grandparents built a country from scratch: We have the capability,” he said. “If we don’t do something, in the next disaster the public system will completely collapse.

“Why are the gaps in our economy so big? Because it’s part of an economic frugality policy: recurring budget cuts, allocations of funds that are stretched and canceled, and long-term plans that are cut off after a year or two. And above all – because we’re stuck in Reagan’s 1981 while the world has moved on to a larger public sector funded with money,” Ben-Tzur emphasized.

Ben Basat offered a straightforward solution to this critical question: “raising debts.” He believes that strategic investments in crucial sectors like education, law enforcement, and healthcare will foster national growth. This approach aligns with the Bank of Israel’s programs since 2019, aimed at boosting productivity, though currently overlooked by the Treasury.

Ben Basat suggested reinstating a big government model, implying a larger state budget supported by a more robust tax system. Contrary to the popular belief of excessive taxation compared to OECD standards, Israel’s reality is quite different. He advocates for a progressive tax system, ensuring higher contributions from the wealthier sections for societal solidarity.

Israel leads in poverty rates among children and youth

AN ANALYSIS of public systems – including health, mental health, education, and welfare – reveals alarming trends. Ben-Tzur pointed out that “We lead in poverty rates among children and youth,” a direct consequence of governmental policies. Highlighting the strain on the system, he notes, “A social worker in Israel handles 149 families,” far exceeding the ideal standard of 100.

The issue of workload is further compounded as, “in 2021, 9.2% of social service positions remained vacant,” leading to an increased workload for existing staff. Despite salary increases, the high workload remains a barrier to attracting and retaining professionals. “It’s not about salary. It’s about working conditions,” Ben-Tzur emphasizes.

Investigating local authorities’ budgeting revealed a disparity in spending on patients. “Weaker authorities are unable to match state funding,” Ben Basat observed, leading to deepening inequality. The state’s matching approach is unfeasible for financially strained local bodies.

The need for a significant, multi-year increase in civil expenditures is clear. To put it into perspective, “the welfare system needs an additional NIS 5.5b. annually, transportation requires NIS 16b., education is short NIS 36b., the police force needs an extra NIS 10b., and the health system requires an additional NIS 20-40b. each year,” he elaborated.

In search of an optimistic outlook, Ben-Tzur concluded, “We think this project is very optimistic.” He sees potential for dramatic improvements through policy changes. Reflecting on the past, he pointed out that, “since 2003, all governments have held the same agenda,” but noted a recent shift in perspective by former finance minister Yair Lapid, who admitted that “it was a mistake to cut the public sector.”

Ben-Tzur concluded that, “for the upcoming decade to mark Israel’s rehabilitation, a combined effort from the public and political spheres is indispensable. We have no other choice but to embark on this transformative journey.”