The Seventh Budget Conference of the Economics and Society Program at the Van Leer Jerusalem Institute considered whether the reduction of the ratio of government spending to GDP has reached its limits. To that end we analyzed the defense budget and the civilian budgets. The defense budget was analyzed from several angles, including its effect on growth and the anticipated development of wages. For the first time, a comparative analysis of defense wages and civilian wages was carried out as we identified the types of professionals, such as doctors and lawyers, that the Ministry of Defense and the civilian ministries share. A detailed analysis of the areas of government spending—including education, defense, welfare, and health—using the main variables that determine spending shows that shortfalls have developed in each of the civilian areas. From the calculations conducted it is evident that the shortfall reached NIS 12 billion in 2014. A review of the optimal fiscal scenario for the economy in the coming years shows that the total of government spending today has failed to achieve the government’s goals in the key civilian areas and that therefore it is important to adapt the spending to the economy’s needs. According to the proposal preferred by the economists of the Economics and Society Program at the Van Leer Jerusalem Institute, government spending should be increased at a real annual rate of 4% by raising taxes and canceling deductions. Implementing the proposed plan will enable growth that is 0.8% higher until 2019 and will make it possible to start dealing with the incidence of poverty, which is among the highest in the OECD countries.

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