The Economic Impact of Ultra-Orthodox Military Service in Israel

• Roshan Amiri
• . April 1, 2024
• . Update: April 1, 2024 7:36 pm
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Israel is facing a significant economic challenge regarding military service exemptions for ultra-Orthodox Jews. The Bank of Israel has highlighted the economic benefits of including the ultra-Orthodox population in military service to spread the defence burden across society more fairly.

The Economic Impact

The Bank of Israel emphasized that the current exemption of ultra-Orthodox Jews from military service has negative economic consequences. With the ultra-Orthodox sector rapidly growing, it now accounts for 7% of the economy and is projected to reach 25% in 40 years. However, only 55% of ultra-Orthodox men are employed, leading to potential GDP losses of six percentage points by 2065.

Fiscal Discipline and Defense Spending

Bank of Israel Governor Amir Yaron emphasized the need for fiscal discipline in light of plans to increase defense spending. He suggested that any additional increase in the defense budget should be accompanied by fiscal adjustments to prevent a lasting increase in the public debt-to-GDP ratio. Lawmakers recently approved an amended 2024 state budget that added tens of billions of shekels to fund the war, with Israel planning to add $5.4 billion of annual defense spending going forward.

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Challenges and Solutions

The decision to end exemptions for ultra-Orthodox Jews has created a rift in the coalition government. Prime Minister Netanyahu sought a 30-day deferment to resolve the issue, indicating the complexity of finding a solution acceptable to all parties. The Bank of Israel’s recommendation to include the ultra-Orthodox population in military service could help address the economic challenges while also meeting Israel’s increasing defence needs.

The economic impact of ultra-Orthodox military service exemptions in Israel is significant. Including the ultra-Orthodox population in military service could help distribute the defence burden more fairly across society, leading to economic benefits in the long term. However, finding a solution that balances economic considerations with political and social realities remains a challenge for the Israeli government.