Travel Reference
In-Depth Information
Although the government was deeply involved in almost every aspect of economic life in
the 1950s, the portion of GDP paid to taxes (the tax burden) was a relatively low 15 percent, be-
cause the state fi nanced a large portion of its activities through loans and grants from abroad.
The burden gradually increased to 28 percent in the mid-1960s, then accelerated in the 1970s
and 1980s to more than 40 percent. Defense costs had climbed in the wake of the Six-Day
(1967) and Yom Kippur (1973) Wars, and the government had expanded its welfare programs.
Before 1967, government expenditure claimed on average 35 percent of GDP.
Between the Yom Kippur War and 1985, government expenditure more than doubled,
reaching 77 percent of GDP, the highest rate among Western economies, an increase made
possible by signifi cant U.S. aid. Even as taxes rose, spending grew faster, leaving the gov-
ernment with widening fi scal defi cits. On average, they amounted to 14 percent of GDP in
the years 1974 to 1985; government debt was equal to 145 percent of GDP at the end of that
period.
The government's impact on the economy during those years went beyond taxes and
spending. Although Israel always had a large private sector, the government and the labor
union establishment gained control of an increasingly large segment of manufacturing and
services. The state acquired control of companies such as Palestine Potash and the Haifa Oil
Refi neries and set up most of the defense industry. Government ministries or companies ran
the telephone system, provided water and electric power, operated a fl eet of ships (Zim) and
an airline (El Al), and controlled monopolies on radio and television broadcasting and on
agricultural product sales. In 1983, in the wake of the bank shares crisis, it took control of four
of the fi ve biggest banks. As noted earlier, the state was actively involved in industrial develop-
ment and gradually monopolized fi nance. Regulations cut deep into economic life.
Although Israeli government spending has fallen since 1985, when the Economic Stabilization Plan was put
in place, it continues to account for a large proportion of the economy compared to government spending in
other developed economies. (Data: OECD; Chart: David Rosenberg. Drawing by Bill Nelson.)
