War, women, school, real estate: Why Israel's economy is failing and how to fix it - opinion

Recently, the Israeli economy suffered tremendously at a rate that had not been seen in many years, most probably since the Yom Kippur War. In the decade that followed the Yom Kippur War, the economy completely collapsed and suffered absurd inflation that disrupted all financial systems. Conversely, the continuation of the current war weighs on Israel's economy and requires fundamental economic changes in order to sustain its society.

A sharp increase in economic efficiency and labor productivity is required, which must overcome the fertility of women in Israel. For ultra-Orthodox women there are 3.8 children per woman, for Muslim Arabs 2.9 it is children per woman, for non-Orthodox Jews it is 2.5 children, for Druze women is 1.9 children, and for Christians it is 1.6 children per woman, according to the Central Bureau of Statistics.

The current Israeli school schedule and how it hinders women's success

The balance between work and the family unit while making a huge contribution to the economy will only be efficient if Israel participates in the customary practice among the nations of the world. This would mean changing the Israeli education system to a longer day from eight in the morning until four in the afternoon, five days a week. In doing so, women will be given the opportunity to develop a career, increase the income of the family unit, and optimize activity in all sectors of the economy.

The current system offers women part-time jobs that in the end, cost the time to get to and from the workplace. This isn't worthwhile or effective. The War of Iron Swords is Israel's opportunity to make drastic changes in the education system and increase the income of female teachers. 

The Israeli economy after the October 7 massacre

The massacre of Hamas on October 7 caused harsh damage to the Israeli economy, and could take years to restore with tremendous efforts. In 2023, there was an unbearably huge increase in the government's deficit to NIS 92.9 billion, an amount equal to 5% of GDP after a surplus of NIS 7.9 billion in 2022, which was 0.4% of GDP, according to initial estimates of the Central Bureau of Statistics published this week.

This report is based on a summary of the government's current account balance, including income and expenses related to investments in non-financial physical assets. The jump in the deficit is due to a tremendous increase in the transfers of the Israeli government to businesses that were affected by the Israel-Gaza war and as a result of Hezbollah's terror on the Lebanese border. The real estate market is also deeply suffering as a result of the restrictions that the state has imposed on Palestinian workers. The state's revenue from real estate taxation is collapsing and must be strengthened in order to improve the financial situation.

According to data presented by the researcher Dr. Hagay Atkes from the Bank of Israel, the employment of Palestinians from the West Bank decreased from 124,000 before the war to 28,000. The illegal employment of Palestinians is now increasing at the expense of the legal work that has disappeared. The return of authorization for Palestinians from the West Bank to work in Israel, with a more rigorous security screening, would help manage this growing issue.

The fate of Israel's industries in the current system

Despite this, there were increases in the government's income from capital received from abroad to nonprofit and national institutions. Israel's total capital income and current income from abroad amounted to NIS 23.3 billion last year after NIS 20.2 billion in 2022 and NIS 16.1 billion in 2021. Israel serves as a land of refuge for the Jews of the world, Ukrainians, Ethiopians, expatriates of the USSR, and Argentines. Therefore, the government would be justified to conduct a campaign to increase the capital income and current income of the State of Israel, which would act as a sort of insurance premium that World Jewry must provide.

Another solution would be for ultra-Orthodox citizens to be encouraged to enter the construction industry after appropriate professional training in the field. If the incentives for not working are reduced, the desire to acquire a profession, even physically taxing labor, will increase. Of course, additional workers skilled in construction should be brought in from Southeast Asia and Eastern Europe. If not, entire industries will collapse due to the negative impact of the slowdown in residential construction.

These industries are highly dependent on the construction industry - cement, flooring, iron rolling, and elevators are all essential to the foundation of any business. The residential real estate industry was in crisis even before the war and the number of new apartments remaining for sale at the end of 2023 reached a perhaps all-time high, 67,760, which aisre enough for 27.5 months of sales. Israelis are starting to leave their residences on the northern and southern borders and are fleeing to the center. Some evacuees will not return to live in the areas surrounding Gaza or Kiryat Shmona, for example.

30% of new apartments that remain on the market are in Tel Aviv, 26% in the Central District, and in Jerusalem with 5,470 apartments. Ashkelon and Ashdod combined have another 5,097 apartments. Israel's GDP collapsed in the last quarter of 2023 at an annual rate of 19.4% after an increase at an annual rate of 1.8% in the third quarter of 2023, and compared to an increase at an annual rate of 6.4% in the last quarter of 2022. In total, the GDP increased in all of 2023 at a rate of only 2% after 6.5 % in 2022, and the gross product per capita decreased in 2023 by 0.1% after an increase of 4.4% in 2022.

These numbers do not accurately reflect the serious fall of the Israeli economy after the October 7 massacre. Public spending increased in the last quarter of 2023 at an annual rate of 88% after an annual increase of 8% in the third quarter of 2023 and compared to a decrease of 1% in the last quarter of 2022. 

The GDP of the business sector, which is currently relevant for the future of the Israeli economy, decreased in the last quarter of 2023, when the massive reserve draft took place, at an annual rate of 32% after an increase of 1.5% in the third quarter of 2023 and 7.4% in the last quarter of 2022. The GDP of the business sector increased in the entire year 2023 by only 1.2% after an increase of 7.7% in 2022 and 11.4% in 2021. 

The tech industry's role in the Israeli economy

The restoration of the Israeli economy should be concentrated on the main branches that pull it forward. The main industry on the rise is the technology sector.  Amazingly, the industrial production of technology rose between the months of September and November 2023 at an annual rate of 7.2% after an increase of 2.8% in the of months June, July, and August.

The export of tech industries, which constitutes 36% of all industrial exports, decreased according to the trend data in the three months from November 2023 to January 2024 at an annual rate of 14%, following the decrease at an annual rate of about 17% that occurred in the three months until October last year.

Additionally, to ensure continued economic growth we must cut budgets that are not essential at the moment. Coalition funds should transfer money to encourage start-ups that have withered in the past year. 

The data at the moment are not encouraging: in 2023, investments in the technology, ICT, technology, information and communication industries will decrease by 10%.

Residents fleeing from the terror of Israel's longest war since the establishment of the state. The shutdown of entire industries due to the terrorism of Hezbollah or Hamas is difficult to compensate for. This shutdown leads to a pause in production, trade, and supplies. In any case, the state must acknowledge the need to disperse the work within these industries in every field of production.

An economy that is threatened by constant war will take a fair amount of work to restore. Revenue at the end of 2023 decreased at an annual rate of 9% after a decrease of 11% in the previous three months. Residents have started to wonder if it is worth it to live in settlements that have become military outposts instead of relocating to the center of the country.

The tax benefits for residents can no longer cover the loss of employment that may come with potential physical damage from enemy attacks. Investments in machinery and equipment decreased in 2023 at a rate of 4.4%. Therefore, through added government incentives and tax benefits, we must increase the integration of robotic systems, including contemporary artificial intelligence. AI will work with productivity which will only increase if there is an investment in relevant professional training. With technological improvements, artificial intelligence, and a longer school day, the Israeli economy will slowly thrive once again.