Israelis Continue to Feel Economic Pain from War

The ongoing fallout from the October 7, 2023 Hamas attack continues to affect Israel's economy, with one-fifth of evacuees losing their jobs, according to the Israel Democracy Institute (IDI). The report highlights the broader economic consequences of the war, with tens of thousands of Israelis forced to leave their homes due to the attacks and the subsequent missile barrages from Iranian-backed Hezbollah in southern Lebanon.

Following the attack, many Israelis, especially those in towns near the Gaza and Lebanese borders, were evacuated and relocated to temporary accommodations across the country. While the government provided subsidies to support evacuees, the economic disruption has been severe. The IDI survey conducted in December and January revealed that 19% of those employed before the war were no longer working at the time of the survey, further deepening the economic toll. Additionally, 3% were called in for reserve military duty, further impacting the workforce.

The economic impact is particularly noticeable in the north of Israel, where a third of households have reported a decline in income since the war began. In areas severely affected by Hezbollah's bombardment, the fall in economic activity has been significant. Key sectors such as business, tourism, and agriculture in the north have been hit hard, leaving many residents without stable sources of income.

The Bank of Israel has acknowledged the sharp slowdown in economic activity in these regions and warned that the war's additional financial strain, combined with higher defense spending and a shortage of labor in critical sectors like construction, is putting substantial pressure on the Israeli economy.

The war has also led to economic strain on Palestinian workers, with Israel's closure of borders at the start of the conflict leaving tens of thousands of Palestinians unemployed. This, in turn, has put pressure on the finances of the Palestinian Authority, which has seen a significant drop in its tax revenue due to the loss of employment opportunities.

In related news, Israel’s Ministry of Finance is considering implementing a significant salary cut for doctors, teachers, and employees on personal contracts in the civil service. The proposed cuts, set to take effect between April and December 2025, would amount to roughly 3.3% per month. This measure is designed to offset the salary period from December 2024 to March 2025 when these workers were not included in the cuts imposed on other public sector employees. The plan is part of a broader effort to achieve the government’s NIS 5 billion savings target for 2025 as part of efforts to reduce the state budget deficit.

The salary reduction plan stems from an agreement made between the Ministry of Finance and the Histadrut General Federation of Labor last November. This agreement was designed to offset a shortfall in the budget, following substantial increases in defense spending.

In addition to the proposed salary cuts, the Israeli government is raising fares for light rail services in Jerusalem and Tel Aviv by 3.3%, from NIS 6 to NIS 8. This increase, which had been planned for 2024, is designed to help finance a moderation in the hike of public transport fares that had initially been scheduled for 2023. The increase in fares will help offset the broader increase in bus and rail subsidies that has grown significantly in recent years.

Additionally, as part of the 2025 budget agreement, bus fares will also rise by 33.3%, from NIS 6 to NIS 8. Monthly public transport subscriptions will see increases, although discounts will be provided for residents in lower socioeconomic areas and free travel will be available to citizens over 65.