Engines of Equality: A New Way of Looking at the National Budget

This paper makes a simple argument – that the national budget must include not only engines of economic growth, but also engines of equality

Capitalists, Finance Ministry bureaucrats and economists expect the national budget to foster growth. Growth is of course good for business and it provides employment. Yet growth in and of itself cannot tackle one of the main challenges of our time – the growing inequality.

In Israel, for most of the past thirty years, the GDP per capita has risen more sharply than wages; in other words, the economy has grown, but most of the population has not enjoyed that growth to the expected degree. In the United States, 91% of all new income generated by the growth that followed the great financial crisis of 2008 went to just one percent of the population – the top 1%. The vast majority of the population experienced no improvement in their standard of living.

Why Do We Need Fiscal Engines of Equality?

We have been taught to think that inequality is the result of the marketplace; we have also been taught to think that inequality should be dealt with in that same marketplace.

We forget that the State is part of that same market and not a separate arena. It is the largest single employer in the economy, employing one third of the country’s workforce and pays just over one quarter of total wages in the economy. In this regard, the State is an integral part of the economic marketplace. As such, it has a central role in the creation and perpetuation of inequality – and, at the same time, it has the power to reduce inequality, be it through employment and compensation within the public sector, or via the allocations it makes to fund the various services it offers the citizenry, or via the taxes it collects in order to finance the above expenditures.

It makes no sense for us to ignore fiscal policy’s contributions to inequality in Israel – nor its possible contribution to increasing equality. Just as we expect the national budget to include engines of growth, so we should demand that it include engines of equality.