The October 2023 war, together with the proposed 2025 cuts in the national budget, are expected to negatively affect low-income Israelis, raise the already high rate of poverty in Israel’s geographic periphery, widen inequality between residents of the center and the periphery, increase the number of households in debt, and damage the resilience of households and communities — resilience that is essential for recovery and rehabilitation.

A recent Adva Center study revealed that close to a third (28.5%) of employed persons in the northern and southern districts earn low salaries, compared with less than a fifth (17.5%) of employed persons in the central area of the country.

Below are some of the budget cuts planned for 2025, all of which are expected to have a negative effect onlow wage workers:

1. Placing a freeze on negative income until 2027. (Retracted) 
2. Placing a freeze on child allowances until the end of 2025. These allowances, paid to mothers, reflect at least a minimal recognition of the cost of raising children. They constitute a significant source of income for households in the lower income deciles, and the failure to link them to rises in the cost of living will widen inequality.
3. Increasing the lower level of the national insurance (social security) tax . This tax hike will lower take-home pay, and will, of course, affect low-income workers more than others. Women constitute 65% of low earners and will thus bear the brunt of the tax hike.
4. Initiating across-the-board budget cuts in the public services – to the tune of some 6.5 billion shekels. These cuts will affect, among others, Israel’s education, healthcare and social welfare systems; they will be sorely felt not only by women living in poverty, who are almost entirely dependent on public services, but also on lower middle class households.

Dislocated Persons from the South and the North of Israel Will be Especially Affected by the Absence of Relevant Policy

A study recently published by the Adva Center showed that the continued dislocation of Israelis from their homes resulted in the desolation of communities; it also forced numerous households to move from place to place and resulted in employment as well as personal crises.

The extended residence of displaced individuals and families in hotels also extracted a heavy price. Parents reported a loss of authority, among others due to the lack of stable educational frameworks; adults and senior citizens coped with forced inactivity and in some cases isolation from their families. The longer the hotel stay, the more invidious its effects. When the time comes for displaced households to return to their homes, the experience of dislocation is liable to affect the capability of internal refugees to forgo dependence and return to normal life.   It should be noted that a possible result of a too-early cessation of financial assistance for housing, unemployment, and businesses for those adversely affected by displacement, may very well have implications for the economic resilience of households and whole communities and result in increased poverty in the North and South of Israel.

Poverty and Debt in Arab Society in Israel

Most Arabs in Israel live in separate rather than mixed Jewish-Arab localities, and many Arab localities are to be found in the North and South of Israel.

In recent years, against the background of the high cost of living and increased interest rates,  a debt crisis has developed among Arab households. These households are more likely than Jewish households to experience economic distress (In 2022, 39% of Arab families lived in poverty, compared with 16% of Jewish families). This situation has led to a type of double jeopardy:  as institutional credit is not readily accessible to Arab citizens, they are dependent on the gray market, which does offer loans, but at high interest rates and danger to life and livelihood if the loans are not repaid in time. This situation not only creates and exacerbates the debt crisis, but also buttresses organized crime, which takes full advantage of the economic distress in Arab society for its own gain.

A study conducted by the Adva Center found that in 2021, 7.9% of Jewish households were in debt, compared with 19.4% of Arab households. Despite this situation, Arabs were under-represented in insolvency rehabilitation programs, and the average time it took to return a loan for Arabs was fully 18 times longer than for Jews, despite the fact that Arabs’ loans were smaller.

Protecting the Poor in the Periphery: Policy Recommendations

Adva Center recommends initiation of a broad-based policy of economic rehabilitation and debt servicing assistance. In addition, we recommend the initiation of a multi-year strategy whose goal is to rehabilitate those who were uprooted from their homes in the North and South of Israel. In the short-run, we call on the government to adopt the following recommendations:

1. To cancel the proposed budget cuts proposed by the Ministry of Finance, as they will have harmful effects on low-income workers, and to consider in their stead raising tax rates for high earners and on profits on capital investments. In the middle and long run, the negative income tax for parents should be significantly increased.
2. To design non-profit programs to provide credit accessibility for low-income persons, on better terms than those currently available. This can be effected by utilizing the Postal Bank or by creating a fund on the basis of monies obtained following criminal proceedings against those who break the law mandating fair credit terms.
3. To continue to support individuals and families displaced by the October 2023 war, with existing or new allowances. This can be done, for example, by utilizing the mechanism of the Victims of Hostile Actions Law of 1970, via a temporary order.