This record is a partial extract of the original cable. The full text of the original cable is not available.

C O N F I D E N T I A L SECTION 01 OF 04 TEL AVIV 000450 
 
SIPDIS 
 
E.O. 12958: DECL: 01/30/2016 
TAGS: ECON EFIN PGOV IS ECONOMY AND FINANCE ISRAELI SOCIETY
SUBJECT: POVERTY SITUATION IMPROVES AMID HEADLINES TO THE 
CONTRARY 
 
REF: 05 TEL AVIV 7051 
 
Classified By: Deputy Chief of Mission Gene A. Cretz for reasons 1.4 b 
and d. 
 
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Summary 
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¶1.  (C) The poverty report released on January 23 by the 
Israeli National Insurance Institute (INII) indicates a 
marked slowdown in the rate of increase of poverty in Israel. 
 At a time when the sharp cut in welfare payments resulting 
from the enactment of the Netanyahu economic reform program 
in 2003 is being blamed by politicians and the press for a 
drastic increase in severe economic distress, the report 
shows that the situation has begun to improve, albeit slowly. 
 While the number of children living in poverty has 
increased, the number of families below the poverty line has 
stabilized, and the number of elderly living in poverty has 
decreased slightly.  The Arab and Ultra-Orthodox Jewish 
sectors, however, remain mired at the bottom of the economic 
ladder.  Despite the inflammatory statements of some 
politicians and commentators who have seized on the report in 
this election season to attack the government, the 
combination of cautiously restoring some of the allowances 
that had been significantly cut and strong economic growth 
has begun to positively impact many on the lower 
socio-economic rungs and pull some of them out of poverty. 
End Summary. 
 
----------------------------- 
Moving in the Right Direction 
----------------------------- 
 
¶2.  (C) The INII poverty report covered the incomes of 
Israeli individuals and families during the July 2004 to June 
2005 period.  It was immediately seized on by politicians and 
commentators as evidence that the poverty situation in Israel 
has reached crisis proportions.  In reality, these poverty 
statistics overall seem to indicate that things are moving in 
the right direction, albeit slowly. 
 
-- Firstly, the government's economic reform plan begun in 
2003 has pulled the country out of a deep recession and moved 
it onto a path of solid growth - 5.2 percent in 2005. 
 
-- Secondly, the government has been fine-tuning its 
allowance policies, restoring some of the aid that was cut to 
those who were unable to join the labor force or otherwise 
make up what they lost in reduced welfare payments.  Overall, 
Israel has significantly reduced its transfer payment to GDP 
ratio in recent years, moving from 8.6 percent of GDP in 2001 
to 8.5 percent in 2002 to 8 percent in 2003, 7.3 percent in 
2004, and an estimated 7 percent in 2005. 
 
-- Thirdly, some families which formerly had no breadwinner 
saw one or more of their members join the workforce, as 
indicated by the decrease in the number of families with no 
breadwinner.  The substantial decline in the unemployment 
rate from 10.4 percent in 2004 to about 9 percent in 2005 
played a major role in this.  The enactment of the Wisconsin 
employment plan in August 2005 should contribute to an 
acceleration in this trend, as it helps thousands more 
unemployed individuals find suitable employment.  The plan 
aims to place 14,000 people initially, with more to follow if 
it is deemed successful. 
 
-- Finally, the decline in the number of two or more worker 
families living below the poverty line indicates that the 
recent strong economic growth has begun to reach the lowest 
socio-economic sector and to pull some people out of poverty. 
 
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Statistics May Lie 
------------------ 
 
¶3.  (U) According to Avraham Tal in the January 26 Ha'aretz, 
a major factor which must be taken into account when 
assessing the economic situation of various groups is the 
importance of the informal economy.  The statistics cited by 
the INII are based on numbers supplied by the GOI's Central 
Bureau of Statistics (CBS), which do not take this factor 
into account.  According to Tal and others' estimations, the 
"black economy" comprises between twenty and forty percent of 
the overall economy.  He wrote that the CBS numbers also do 
not take into account any income that individuals may have 
other than wages, profits, or allowances, such as goods and 
services they may receive at low or no cost.  Therefore, he 
says that the statistics the poverty discussion is based on 
present a distorted and unwarranted negative picture.  He 
concludes by asking ". . . how reliable is the income data on 
which the INII calculations are based?  Is it true that 
almost every fourth person in Israel deserves to be defined 
as 'poor?'  Wouldn't a country with a quarter of its 
population considered poor look entirely different from 
Israel 2006?" 
------------------------------------------ 
Number of Impoverished Families Stabilized 
------------------------------------------ 
¶4.  (U) The INII - an agency of the Israeli government 
responsible for distributing welfare payments - released a 
report on January 23 covering the incomes of Israeli 
individuals and families during the July 2004 to June 2005 
period.  The INII figures indicate a marked slowdown in the 
increase in the number of families living in poverty, 
totaling 20.5 percent in the 2004/2005 period versus 20.3 
percent for all of 2004, 19.3 percent for 2003, and 18.1 
percent for 2002.  The large increases of past years 
reflected the effects of the recession brought on by the 
Intifada, which were likely aggravated by the cuts in 
allowances enacted as part of the Netanyahu economic reform 
program begun in 2003.  The percentage of one-wage-earner 
families living beneath the poverty line went up from 35.4 
percent in 2004 to 36.9 percent in 2004/2005, but the 
percentage of those with no breadwinner and living completely 
on allowances went down from 35.5 percent to 34.6 percent 
during the same period.  The figure for families with two or 
more people working but still earning less than the 
government-defined poverty line went down from five percent 
to 4.5 percent. 
 
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Children Still Worse Off 
------------------------ 
 
¶5.  (U) The number of children living in poverty has 
continued to rise, drawing particular attention from many 
politicians interested in hyping the poverty situation in the 
country.  However, as with other poverty measures, the steep 
annual growth in the rate of increase has tapered off 
recently.  According to the INII, from 1998 through 2005, 
there has been a fifty percent increase in the number of 
children living in poor families, from 22.8 percent in 1998, 
to 29.6 percent in 2002, 33.2 percent in 2004, and 34.1 
percent in the 2004 - 2005 period.  The number of children 
now living in poverty is 738,100.  INII attributes the 
increase in poverty among children to the approximately 45 
percent reduction in child allowances paid out by the 
government in accordance with the number of children per 
family in the recent period - which resulted in a reduced 
government expenditure during the period of approximately NIS 
3.6 billion (about USD 783 million).  On January 17, INII 
announced that the child allowance, reduced to NIS 120 (about 
USD 26) per month per child as part of the economic recovery 
plan, would shortly be raised to NIS 148 per month (about USD 
32). 
 
----------------------------- 
Elderly Doing Slightly Better 
----------------------------- 
 
¶6.  (U) The number of elderly living in poverty seems to have 
also reached a turning point, with the 24.1 percent figure 
for 2004/2005 now slightly below the 24.2 percent figure for 
all of 2004.  Part of the reason for the slight decline in 
poverty among the elderly is that, recognizing that most 
elderly do not have the option of joining the labor force to 
supplement their incomes, the government restored some of the 
allowances that had been cut earlier - 2.5 percentage points 
of the four percent reduction.  The 2.5 percent was restored 
in two tranches during 2005, and the impact of this move, 
together with the general growth in the economy, is now 
becoming evident in the declining poverty figure among the 
elderly. 
 
----------------------------------------- 
The Arab Sector is Seriously Impoverished 
----------------------------------------- 
 
¶7.  (C) The INII report suggested several ways to continue to 
fight poverty.  To enable more people to join the labor 
market, it suggests enforcing the minimum wage, reducing the 
number of foreign workers, and implementing an Earned Income 
Tax Credit (EITC).  It also suggested a study of the results 
of the Wisconsin plan for possible future expansion, and 
increased investment in vocational training.  Several of its 
recommendations focused specifically on the Arab sector and 
suggested: 
 
-- encouraging the establishment of small businesses, 
 
-- providing incentives to establish industrial zones to 
serve Arab towns and villages, 
 
-- encouraging the hiring of Arabs in Jewish-owned 
businesses, 
 
-- hiring more Arabs in the public sector, 
 
-- and encouraging Arab women to work and to open 
kindergarten and day-care centers. 
According to Ministry of Finance numbers, approximately 35 
percent of poor Israeli households are Arab, and the Bank of 
Israel (BOI) statistics for 2003 indicate that 46.2 percent 
of the Arab citizens of Israel live in poverty.  Whether 
these numbers are accurate or not, the problem of poverty in 
the Arab sector is acute, and if implemented, measures such 
as these could have a large positive impact. 
 
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Ultra-Orthodox Jews also Live in a Cycle of Poverty 
--------------------------------------------- ------ 
 
¶8.  (C) Though not specifically addressed in the INII report 
or in BOI statistics, the problem of poverty is also very 
serious among ultra-Orthodox Jews, known as the "Haredim." 
In this community, the men traditionally study and their 
wives often work to supplement the welfare payments their 
families receive.  As in the Arab sector, the men usually do 
not serve in the Israeli army and are therefore deprived of 
the entree into many job opportunities that helps many other 
young men and women enter the workforce.  Also in common with 
the Arab community, the Haredim often have very large 
families, and are dependent on child allowances and other 
welfare payments.  As things stand now, these families are 
doomed to a cycle of poverty and the large number of such 
families in the Arab and Haredi sectors explains the large 
number of children living in poverty.  Press reports indicate 
efforts are being made to move more Haredi men away from 
study and towards work, but, as with any fundamental cultural 
change, this process is very slow, and its impact will not be 
felt for a long time. 
 
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Other Socio-Economic Divides in Israel 
-------------------------------------- 
 
¶9.  (C) Other socio-economic divides exist in Israel as well, 
but few statistics are easily available from official sources 
to document them.  Residents in development towns on the 
periphery, which were largely populated by new immigrants 
from the Middle East and North Africa in the years just after 
the establishment of the state in 1948, are more likely to be 
found on the lower end of the socio-economic scale than those 
living in the major cities and towns in the center of the 
country.  Of the big cities, Jerusalem is the least 
prosperous, with Haredim and Arabs comprising a large 
percentage of its population.  While the more than one 
million immigrants from the former Soviet Union who came to 
the country since 1990 have done surprisingly well, some of 
them have not yet "made it" into the middle class.  In 
contrast, the Ethiopian immigrants have not fared well and 
many of them live beneath the poverty line and face many 
socio-economic problems.  While the old Ashkenazi (European) 
- Sephardi (Middle East and North African) divide in Israeli 
society is becoming less relevant with every year that passes 
as the Israeli melting pot continues to progress towards 
becoming one coherent community, the general sense in the 
country is that the Ashkenazi sector is still better off, and 
that the poorer towns and cities are still largely populated 
by Sephardim.  Ironically, the Russian immigration is one 
major factor that has brought greater prosperity to some 
peripheral areas in recent years as these (generally 
speaking) highly-educated new immigrants brought their 
entrepreneurial skills and strong desire to succeed to areas 
where housing is much cheaper than in the center of the 
country. 
 
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GOI Definition of Poverty 
------------------------- 
 
¶10.  (U) Note: The GOI defines those living beneath the 
poverty line as those whose income falls below fifty percent 
of median income. 
 
-- For a single person, the poverty line is NIS 1,804 per 
month (about USD 392). 
 
-- For a family of four, it is NIS 4,618 (about USD 1000). 
 
-- For a family of seven, it is NIS 6,854 (about USD 1490), 
 
-- and for a family of nine, it is NIS 8,081 (about USD 
1757). 
 
-- The minimum wage is now NIS 3,335 (about USD 725), and is 
scheduled to rise to NIS 3,456 (about USD 751) in April. 
 
Therefore, even if there were strict enforcement of the 
minimum wage law - which, according to all media reports that 
touch on the issue - does not seem to be the case at present, 
there are many people working at full-time minimum wage jobs 
who are not earning nearly enough to pull their families out 
of poverty.  A family of four would need two full-time 
workers at minimum wage jobs to bring it out of poverty. End 
Note. 
 
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Comment - Hype Cannot Conceal Progress 
-------------------------------------- 
 
¶11.  (C) In this election season in Israel, the INII Poverty 
Report has provided fodder for politicians and commentators 
to hype the problem of poverty.  Politicians have been making 
hyperbolic statements since the issuance of the INII report. 
Tal quotes the following in his Ha'aretz article: 
 
-- "The government has turned poverty into a lethal rapacious 
microbe that paralyzes the immune system."  - Shas Chairman 
Eli Yishai. 
 
-- "The State of Israel has won the Poor Children's 
Olympics." - Yuli Tamir, Labor. 
 
-- "The empty bellies of Israel's children are full of a 
grudge that is liable to explode in our faces." - Michael 
Melchior, Labor-Meimad. 
 
Tal concludes by saying that ". . . statistics about grinding 
poverty and a report full of poor people are like a gold mine 
for the rampant demagoguery, in ordinary times, and much more 
so at election time."   As discussed in reftel, and as noted 
by Professor Ezra Sadan, former Director General of the 
Ministries of Finance and Agriculture, at the Herzliya 
Conference on January 24, the issue in Israel is not so much 
one of poverty as of inequality - which is very disturbing to 
many in a country founded on the basis of the socialist 
ethos.  The bottom line is that the statistics - faulty as 
they might be - indicate that the situation is improving, and 
that the recent economic growth which has sent those at the 
top galloping ahead is also beginning to have a positive 
impact on those on the bottom rungs of the socio-economic 
ladder.  End Comment. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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