Yoav Fisher
Father, Economist

The Economics of the Settlements

I recently posted my thoughts on the economic implications of maintaining the current administrations settlement policy.  After the posting a number of people noted that my piece did not adequately address the economic contributions of the settlements, and only focused on the costs.  In an attempt to give more insight about the cost-benefit of the settlements, and on the heels of the recent announcement of a new land grab, I wanted to share some additional numbers.

Obtaining a true rational cost analysis is fairly impossible.  The last time public figures were released based on locality was in 2007.  But it is possible to give a rough estimate of government outlay (expenditure) as compared to public contribution (tax) for those in the settlements as compared to those not in the settlements.

Using public data from the CBS, and other governmental/academic releases, it is possible to estimate the tax contribution from individual income tax for Arab Israelis, the Ultra-Orthodox, Settlers, and  for everybody else (meaning non-Haredi, non-Settler, non-Arab Israelis).

The results are quite informative.  “Everybody Else” comprises 57% of the population but contributes 73% of private income tax to the government.  Settlers comprise roughly 6% of the population and contribute 6.5% to tax.  Haredim are nearly 12% of the population, but contribute just below 5% to income tax.  Arab Israelis (including Druze and various other minority groups), are 25% of the population, and contribute about 16% to tax windfall.

In other words, both “Everybody Else” and settlers disproportionately pay into the system to support the Arab Israelis and the Haredi populations (this should not be startling to anybody).  These figures are calculated by looking up average salary for each group, unemployment rate for each group, tax brackets, demographic numbers, and the relevant “working age” population for each group – defined as 15 to 65 in Israel.

In summary, settlers pay about 10% more than they should on a pari-passu basis with demographic distribution. Non-settler, non-Haredi, non-Arab Israelis pay 26% more. (Haredim, on the other hand, pay about 40% of what they should).

That’s the inflow part.  The outlay part (governmental expenditure) is much more difficult to quantify. An exact number requires examining each line item for each governmental office to figure out how much goes to the settlements.  This is time consuming as it is, especially considering the fact that many items are not divided out by location, but becomes practically impossible when you get to black-box issues like the defense budget.  Plus it doesn’t cover indirect allocations.

In 2011, the OECD released a study based on the 2007 numbers that were available at the time.  Unfortunately, the Ministry of Finance has since stopped releasing figures based on location.  The study revealed that settlements received 285% more in infrastructure/general government service per person than the rest of Israel, 165% more in education expenditure per person, and 196% more in construction and building services. There is no analysis of the defense budget (black-box).

So while settlers paid in to the system about 10% more than they should have, they received roughly 200% more than everybody else in return.  The true figure is undoubtedly much higher for three reasons.  First, the population growth rate in the settlements is about 4 times the growth rate in Israel as a whole (8% as compared to 1.9%).  Secondly, there is no record of how the defense budget is allocated.  Finally, there is no record of indirect inflows to the settlements.

Municipal taxes (Arnona) are another source of income for the government.   Like US State taxes, municipal taxes are pooled and reallocated. Using public records, it is possible to calculate that in 2012 the average person in the settlements paid about 30% more than they should have to the public pool based only on demographics.  But at the same time settlers received roughly 4080 NIS per person back from that pool. Non settlers received 1650.  In other words, for every shekel that a non-settler Israeli receives from municipal tax, a settler gets 2.5 shekels (250% more).

So yes, settlements and settlers unequivocally receive a noticeably disproportionate share of government money as compared to their tax contribution.

These figures are all based on public records, countless academic papers, and various databases available for anybody to look at.  It is even possible to take the process one step further and look at all the other sources of government revenue (import tax, VAT, corporate tax, etc…) and do a similar analysis.

On a final note, it is important to point out that this is only a snapshot of one moment in time.  In order to truly understand the economic ramifications of a prolonged pro-settlement policy, one would have to quantify future expenditure and tax windfall, as well as potential economic growth, possible job creation, spillover effects, etc.   I have not yet seen any such in depth analysis, but perhaps someone out there can share their insights.

About the Author
Yoav Fisher lives and works in Israel.