Long-Term Spending Projections in Israel

Long-term fiscal projections provide decision makers with tools to assess the long term impact of policy choices. The Israeli Ministry of Finance does not regularly conduct and publish long-term fiscal projections. The absence of such projections limits the Ministry's ability to reflect the long-term implications of economic decisions for policymakers which is crucial for addressing structural challenges and maintaining fiscal sustainability. This report presents the key features of a long-term spending projections model to help the Ministry address this limitation. The model is based on an adapted version of the OECD Long-Term Model calibrated to Israel's demographics and labour market. The model enables dynamic analyses of how employment productivity population growth and policy reforms shape fiscal outcomes. The report presents some key results of the model emphasising that GDP per capita growth is expected to remain relatively stable and strong. Fiscal pressures are anticipated to ease in the long run but demography and labour market integration for Haredim and Arab Israelis will be critical factors shaping long-term fiscal results. The report also identifies ways to better monitor long-term fiscal developments and strengthen the fiscal framework.