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April 6, 2016

Surprise! Guess Who Is the Second Poorest Country in OECD?

(Graphic added by EconMatters)
The Organization for Economic Cooperation and Development (OECD) has rated Israel as the second poorest among its member nations. This is surprising, given the relative level of education and salaries.
Indeed, when looking solely at gross salaries, Israel is 26th in the world; however, when examining net salaries (i.e., disposable income after taxes), the country is second worst in the world (second only to Mexico).
Economists in the Middle Eastern state have asked why this is the case. The answer appears to be a lack of intervention by the government to help the poor improve their condition. This includes using taxes to level the playing field by asking the wealthy to pay more and giving breaks to the poor.
Commenting on the situation in its annual report, the Bank of Israel wrote, “The direct tax system contributes to reducing inequality to an extent similar to the average in the OECD countries, although in Israel direct taxes are not a significant component of wages. This finding attests to the fact that direct tax in Israel is highly progressive.
Its percentage is low, in the third and fourth income quintiles, and relatively high in the highest quintile, and particularly in the top 10th percentile.”
In other words, the Bank of Israel believes that, compared to other developed countries, Israel fairly collects higher taxes from the wealthy. Therefore, the other part of the equation (tax breaks and relief programs for the poor) appears to be where the problem truly lies.
In most developed nations, the government has a 60% influence over curtailing poverty. In Israel, this number is a mere 30%-- half as much as other developed countries.
The Bank of Israel believes Israel needs to greatly increase its budget for allowances to its poorest citizens. This fails to address a second problem unique to Israel’s culture: those who choose to live in poverty. About half of the population of Israel belongs to the ultra-Orthodox community of Judaism and to traditional Muslims.
The ultra-Orthodox choose poverty in order to devote their lives to studying the tenets of their faith, while the Muslims have cultural restrictions against women working outside the home. Unfortunately, adding additional aid to these communities would do little to remedy their situation, and would actually exacerbate their reliance on the state and their overall level of poverty.
This cultural dilemma is unique to Israel. Unfortunately, absent sweeping social changes, there is no readily apparent means of helping Israel escape its cycle of poverty. That could leave Israel stuck at the bottom of the OECD poverty rankings for many years to come.
Courtesy of Economy Watch (Archive Here)
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