The war that broke out on October 7 demonstrated to the entire Israeli population the enormous importance of strong public services that can serve the public both in routine and in emergencies. On the eve of the war, a four-decade process of continuous budget cuts, especially since 2003, had already brought Israel to a state where public services were diminished and weak. A study we conducted found public spending in Israel was 9.8 percentage points of GDP lower than the OECD average. This means 171 billion shekels less.
This huge deficit in public investment helps explain why the extent of the October 7 disaster. Beyond the security and political failures that led to the outbreak of the war, the wholly inadequate functioning of government agencies and public services at our most difficult time amounts to no less than a colossal civic failure.
With so many Israelis impacted by the weakness of the public services during this war, the crisis could provide an opportunity for a change of direction: from neglect and reduction to rehabilitation and rebuilding of the public sector. In Israeli public discourse, the term “big government” has come to describe a bloated government with many unnecessary ministers and ministries. But Israel needs a different kind of big government, a public sector that employs enough nurses, teachers, social workers, police officers, and other public employees, and that pays them a fair wage that attracts the best to public service. October 7 demonstrated how much Israel needs a strong, sufficient government that can handle responsibility for the many essential areas in the daily lives of citizens, provide high-quality, accessible, and universal public services, and offer a dense social safety net. But for requires the adoption of a different economic policy that puts public services at the center.
The continuous draining of public services is not inevitable and is not an automatic outcome of security spending. It is a result of decisions. Israel must embark on a path of multiyear increase in public spending, build a long-term plan, and adhere to it. Just to put it in proportion, the welfare system still lacks 5.5 billion shekels a year in the budget base, transportation has a 16-billion shekel shortfall, education lacks 36 billion shekels, the police 10 billion, and the health system needs another 20-40 billion shekels a year. Compared to these amounts, the coalition funds are peanuts.
The rehabilitation of public services will involve a significant increase in government spending, which will need to be funded through tax increases. Once it was perceived as an unpopular step. Today it is a reality. The choice between high taxes and expenditure levels and low taxes and expenditure levels is a policy choice. Choosing a policy path that will allow the implementation of the Bank of Israel’s investment program is expected to increase labor productivity and significantly improve the quality of life for all Israeli residents. Choosing a policy that will also add and increase public spending will require a further increase in the tax burden, but will also significantly improve the quality of life of all Israeli residents, reduce the public’s private expenditure on social services, strengthen the economy, and turn Israel, as far as possible and as it deserves, into a country with high quality of life for everyone.
The war on October 7 was a wake-up call for Israel. It showed that the country needs strong public services to function properly, both in routine and in emergencies. The government must commit to a path of multi-year increase in public spending and must be willing to raise taxes to fund it. This is the only way to ensure that all Israelis have access to the high-quality services they deserve.