The Governor of the Bank of Israel, Professor Stanley Fischer, today at the Globes Israel Business Conference

5.12.2005

The Governor of the Bank of Israel, Professor Stanley Fischer, today at the Globes Israel Business Conference:

"From the third quarter of 2003 to the third quarter of 2005 Israel's economy grew an annual rate of 4.8 percent.

"In addition to the effective short-term policy measures adopted, we must continue to sustain growth as the fundamental solution to the problem of poverty, and develop a policy that will enable all Israel's citizens to realize their full potential. For example, increasing the resources in the education budget allocated to the weaker sections of the population will provide the next generation with equal opportunities.

"In order to come up with an appropriate social policy, the problem of poverty must be examined from several aspects and not just one. For example, poverty can be assessed in absolute terms, in other words, by defining the poverty line as the minimum level of real income needed to buy a particular basket of goods such as food, clothing and housing. Thus, if we define the poverty line of 1997 as the level of income determining the absolute poverty line, we see that there was hardly any change in the rate of poverty between 1997 and 2004, and it actually declined slightly. In fact, using this definition, the rate of poverty went down until 2001, and rose again somewhat thereafter."

"From the third quarter of 2003 to the third quarter of 2005 Israel's economy grew an annual rate of 4.8 percent." This was stated by Professor Stanley Fischer, Governor of the Bank of Israel, in his address to the Globes Israel Business Conference in which he reviewed Israel's economic situation during the last few years. The Governor emphasized that it was essential to persist with the macroeconomic strategy aimed at achieving sustainable growth at the same time as tackling the problem of poverty.

Professor Fischer reviewed the various aspects of poverty, and paid particular attention to the correct policy for dealing with it in the long term and the short term. Among the measures he considers are required for the long term, the Governor included: continuing with the macroeconomic strategy aimed at achieving sustainable growth; increasing the education budget resources allocated to the weaker sectors of the population to improve the chances of the next generation obtaining equal opportunities; enhancing the government's system of professional retraining, with the focus on essential skills; encouragement of professional retraining by the business sector; and extending the programs for providing adults with basic education.

The Governor also stressed the importance of promoting policy measures to deal with the problem of poverty in the short term. In his opinion such a policy should be based on the principle of providing incentives for those capable of working, giving assistance to poor workers (in such a way that will encourage them to stay in the labor market), and providing relief for those unable to work, such as the handicapped and the elderly.

The Governor enumerated several examples of policy measures consistent with the above principles: instituting a negative income tax; government participation in the costs connected with encouraging the weaker sections of the population to go out to work, for example, day care centers for children, and transportation; and establishing a legal and supervisory infrastructure that would encourage the institution of reverse mortgages, which would enable the elderly to obtain a monthly income flow from the apartment they own.

Professor Fischer said that in order to formulate the correct social policy, various aspects of the problem of poverty must be reviewed, and not just one. "For example, poverty can be seen in absolute terms, i.e., by defining the poverty line in terms of the level of real income considered the minimum required to cover the cost of a certain basket of goods such as food, clothing and housing. Thus, if the poverty line in 1997 is taken as the level of income defining the absolute poverty line, we see that the rate of poverty hardly changed from 1997 to 2004, and actually declined a little. It went down until 2001, and rose again thereafter."

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