A (3:19)

Beyond that, for me, the last week, the strength of the shekel continues to amaze. 314. We started last week. A strong shekel is getting stronger to the point that the chairman of the bank had to reduce the interest rate. And that was well received by parts of the economy, but other parts don't like that as much.

B (3:38)

And you're right, it's been a pretty crazy few weeks that we're living through and everything being so unstable. Is global capital just really attracted to Israel as a predictable bet even in wartime, or is there kind of a fundamental infrastructure here that investors are attracted to? It's interesting.

A (3:54)

Another topic I'm curious to hear your thoughts about is we started 2026 effectively with a tax increase. It's not marketed to the public as such. It's marketed as a freeze of the tax thresholds. But what it does mean is that Israeli families in the, I would say top two deciles that pay already 90% of the taxes are going to pay on average 10,000 shekel extra in taxes this year. You and I are going to feel that at the tail end of 2026, 2025 was not kind to us with a real tax increase as well. Any thoughts on that before we move Index?

B (4:27)

The war is absolutely being funded less through kind of some reform and very much on slow pressure on the middle class. I think that could be sustainable for some time, but we're looking for a policy for the next decade today.

A (4:39)

Buckle up, listeners. Viewers, we have Ariel Karlinsky. He's a PhD student in the center for the Study of Rationality in Hebrew University. That is where two Nobel laureates come from. That's Daniel Kahneman, the late Daniel Kahneman and Israel Oman Shihab Adel Chaim. Ariel Karlinsky's study called Alhamisim Velanifla of Miracles and Taxes, reference to our Hanukkah proverb, is actually groundbreaking in depicting the three economies of Israel showing the net contribution of different parts of society and actually showing how the generosity of the mega progressive welfare state that was built in Israel has been in an extent hijacked by different parts of the population. So yeah, I agree. I think ultimately numbers need to lead the way here and Ariel Studi and his co researchers give us that baseline upon which we can have a proper political debate. And I think that's a very strong contribution definitely.

B (5:36)

And the research really forces us to kind of make a decision of where we stand. I will never again say the Israeli economy because his research makes it so blatantly clear that when you say the Israeli economy it's not very evident who you're speaking about. I'm super excited for this conversation. Okay, so let's get our latest update on the Windex. That's the what's your number index that tracks the publicly funded Israeli based or founded companies. So how is the Windex looking this week?

A (6:07)

Well, we had a tough week so look who's back. Windex bounces back with 5.56% increase on the week in the green outperforming both the S and P and the NASDAQ by 4.59% and 4.71% respectively. We've had elbit Israeli defense tech giant that doubled its ICL last year rising to the tune of almost 10%. Last week we gave a hint to our listeners. So those of you listen. There seems to be an upcoming IPO of Israeli Airspace Industries that was announced earlier today. We saw Mobileye acquiring for $900 million Robotics Co. Humanoid robotics company called Menti Robotics in what was not well received by the market. That was a $900 million acquisition. The stock actually lost weight and a lot of criticism of this one because the company saw the founder of Mobiline, one of its biggest shareholders, Amnon Shashua, actually gaining about a third of the exit value of the company. I think we're also going to see with IAI in the public space there's going to be more opportunities to invest in sort of AAA big size Israeli defense tech and we'll see what that does to elbit. Nova measurements, Palo Alto Networks all still going up. Nova up 8.19% going above and beyond the 11 billion market cap. Clearly on good news on the industry. Nova is our sort of small ASM equivalent in the Netherlands. Monday.com continuing to climb lemonade up 6.3%. And today I think it was like 7% last time I saw. So really big jump in Lemonade's path forward. Yael, any other thoughts on the green before we go to the reds?

B (7:51)

Take us to the reds.

A (7:54)

So we see continued negative sentiment. Unfortunately for Fiverr, Etoro and Wix, how do these companies fare with an AI that continues to grow? Right, like, what does Fiverr do? How does it adapt? What does Etoro do? That's the sort of massive headwind that these guys are seeing, and it doesn't seem to wane as the year starts. Any thoughts there?

B (8:14)

Yes. Those are three companies that have not yet figured out how to climb and sustain and prosper with this AI revolution.

A (8:26)

So we're ready for a long play. Today we have with us Ariel Karlinsky. A real thanks for coming on the show. And traditionally we ask our guests, what's their number? So what's yours?

C (8:35)

I brought lots of numbers today. First number I'll say is between 80 to 90% of ultra orthodox or haredi households in Israel are dependent on the state.

B (8:44)

You know, Ariel, on this podcast, and I know you're a very dedicated listener, we're very bullish about the Israeli economy, the robustness of the economy here, the vitality of the horizon. But the truth is really, if you look under the hood, as you do in your research, things aren't that simple. We're not talking exactly about one economy, Is that right?

C (9:05)

That's right. So if you take something like GDP per capita, standard way that we measure how prosperous countries are, latest World bank data, 2024, Israel's GDP per capita, about 55,000. That's very high. That's higher than New Zealand, for example. But there are actually several economies. There's the non ultra orthodox or non haredi Jewish economy, that's actually an even more prosperous economy, about 71,000 GDP per capita. So it's higher than France. It's higher than Sweden, actually. But there are two additional economies. Think of them as more even developing economies. That's the Arab and that's the ultra orthodox economy, which actually have a GDP per capita closer to something like 26,000, which is in line with Mexico and China. So these are huge, huge gaps. And these different sized pies, together, they form the Israeli economy, which again is absolutely a developed economy. But the gaps between these groups are immense in terms of pure productivity.

B (10:05)

So what do you think got us here? Yonatan, you and I have been part of this, like, competitive startup nation, scale up nation we know it pretty well, but we're hearing, and we know very well from society and from, you know, living that we're also developing very much third world pockets within this, you know, the different economies that Arielle is laying.

A (10:23)

Out to our listeners. Ariel published alongside other researchers a study a couple of months ago. The notion that is, I think at the core and Ariel, take us through it, is Israel is still very much, Even after the 1985, 86 reforms, a very robust progressive welfare state. So many people aren't even meeting the tax brackets. We have top two deciles paying, what is it now, 85% of the income tax. So walk us through how the generosity of the progressive welfare state ended up in what you refer to as three different economies.

C (10:57)

You're absolutely correct about the income tax. And the income tax is heavily featured in Israeli financial media because this is data that is also pretty easy to gather. The Ministry of Finance publishes this report. But as all of us know, I had a receipt right here. You know, I bought coffee today. I not only paid income tax, I also paid vat. The gasoline tax here is very high. So all of us pay many more taxes than just income taxes. So just the income taxes, they don't pay the full picture, but actually households of, let's say, similar sizes, they will actually pay very similar vats. They will actually pay very similar tax on tobacco or alcohol if they purchase it. What is very different is the income tax. So the income tax in Israel is probably, I think, too progressive in the sense that the lower brackets pay actually nothing once you have not a high enough income. And it's also the number of your dependents. So your children is high enough. And that can actually even be two or three children. You're already either not paying income taxes at all or paying very few. All of these taxes, what they do is they fund the modern Israeli state and welfare state. It's taxpayer funded healthcare, it's taxpayer funded education. And when you have groups that are unable or unwilling to increase their productivity, but they are entitled to everything that the modern welfare Israeli state provides, you get huge gaps in what these groups receive versus what they pay for in taxes.

B (12:27)

You know, we talk a long time about in the west thinking about welfare states as something being driven by left wing economies. The stuff that you're laying out here is certainly that. But in reality, we've been governed now by right wing economic policy for I guess it's been three decades. How do you explain that discrepancy?

C (12:44)

Wow. So there used to be a pretty right Wing finance minister, his name was Benjamin Netanyahu, present and absent for many years now on economic issues. And actually some of the reforms that he has led, as I said, in like 2003 to 2006, were hugely important. It used to be that once you have a certain amount of children, you would get thousands of shekels every month for every child. So people's main occupation was actually as weird as it sounds to produce children and actually not work. And that was especially true when it collides with, you know, go and multiply of extremely religious people. The Haredi community had a chance to, you know, do the mitzvah as best as they can and get paid for it. So what happened is that across time since the 70s, child allowances, so the monthly stipend that you get per child, it used to be only for army veterans. Actually it used to be called child allowance for army veterans. A series of decisions by the Supreme Court and also some political pressure, of course, said that this was discriminatory towards Arabs and ultra Orthodox. So this changed in the 70s. So in the 70s, all of these groups which were not entitled to the allowance in the first place, started getting it. And you saw, for example, employment rates of ultra Orthodox men, it used to be much higher. So people used to work, but I got money for actually not working until these reforms in 2003. And ever since then, actually, because I think Netanyahu got burned pretty hard politically for what he did in 2003, that he decided to not touch this hot potato ever again. So we were left with this sort of right wing, capitalist, entrepreneurship driven, highly successful economy on the one hand, and groups that are highly, highly dependent on it. And this weight, it was actually not that big of a weight because the rest of the economy is so incredibly productive. So the bigger the pie, even if you take a large slice of this pie, you still have much left. But now there are other issues on the horizon with demographics.

A (14:47)

Yeah, I think it's basically a tale of, you know, if you will, three trains, right? As long as one train drives faster, then it's okay because it can carry all the rest. And I think that's what we had throughout many years. I think demographically, the fact that the sort of net contribution to the market, which is, I think, the innovation of this research that Ariel and his colleagues have come up with. How do you kind of clean it up in a progressive welfare state? How do you know net. Net. If a household is contributing or is receiving more in taxes, and if the population that's net negative is growing fastest demographically, then you have a challenge unless the pie keeps on growing really, really fast. And I think the dynamic that we're seeing in the last few years, I was part of an worked for the president, obviously not for the prime minister. In 08 through 2012, there were a lot of reforms in Netanyahu, the second government from Netanyahu, open skies. That was a big battle with unions in the aerospace industry that got us to, you know, EasyJet, $70 flights that everybody enjoys now. Reform in the ports, reform in the electricity structure of Israel that ended up with Israel kind of number four from the bottom in the prices of electricity per kilowatt hour right now, including also obviously the natural gas. So when the government of Israel has the wherewithal and it pushes forward, Netanyahu being Prime Minister in 2010, 2012, it can do that. And the train drives fast. I think we reached the end of that road.

B (16:20)

Ariel mentioned it as well. We're going to kind of double click on what's happening today on the Haredi economy, specifically, election year and all. And it's kind of at the heart of the tensions that we're seeing. Ariel, what are you seeing there? And I know you also spoke about this.

C (16:35)

So as I said, employment rates in the Haredic community hit a crater of only about 30%. These are able bodied men. Women had even lower, I think in about 2003. And that's when the reforms that Netanyahu did, heavily reducing child allowances and basically paying less for unemployment unless you are already employed and for shorter durations from then, it started to rise. Now, I think back in 2000 and 2005, there was a governmental committee that said our goal is to increase employment both in the Arab and the Haredi community by at least 60% until 2020. Now, in the Haredi community, what happened was two things that I think no one anticipated. The first thing, and the good thing is that Haredi women employment rates today are very similar to non Haredi women. So it's over 80% and that's including, you know, six to eight children. I have no idea how Haredi women both work and care for six to eight children. And another man at the House. That's amazing. But what happened with Haredi men? So Haredi men employment rates increased, but they still haven't reached even the levels that they were before, like the 70s when they were much higher at about 60 to 70%. So they're currently hovering at like 55%. And it does seem that there's this like very Sticky feeling at about 55%. Many possible causes for it. Fear of conscription, for example. Actually you have to be at the Yeshiva in order to not get conscripted. And that's a huge, of course, political issue right now in Israel. The biggest issue though, and I think where the Israeli government is at fault in a certain sense, is the educational system. And the education system for Haredi generally is completely unrelated to the modern economy. And for Haredi men, even more so. They don't study English, they don't study math. Nothing to do with computers. Of course, even if you want to go to work, if you want to be employed, you will almost always start at a very, very, very low wage. And then you can do a very easy calculation where I either work and I get I know, 5,000amonth, or I don't work and I rely on all these allowances and benefits and discounts and reductions that by time became very tailor made to the Haredic community. Not explicitly. So there's no law that says if you are ultra Orthodox, you will pay less in childcare. But it does say something like, if the woman is working and the man is not working and you have more than 4, 5 children, you will get heavy discounts. So this is very tailor made. Due to the political power of the.

A (19:15)

Kharitic parties, I think it's important to kind of get the bottom line on the net contribution. How much do these households take in benefits and how much do they contribute? Like, give us the kind of raw findings so we know what we're looking at here.

C (19:28)

Okay. I always love to talk numbers. So as I said, income tax is very easy to show. Media has done it a bunch of times. And also something like child allowances is very easy to show. And there has been this persistent, let's say, myth coming even from ultra Orthodox members of Knesset that say something like, it's true that we don't pay income tax, but pay a lot of VAT because we have large families and we pay a lot in the supermarket. And also child allowances, right now they're very low. They're like 200 something shekels per child. That's nothing. So we're actually not getting anything from the state. But as I said, what is the modern welfare state? The modern welfare state is actually much more about taxpayer funded education and taxpayer funded healthcare. So what we do is for each household in Israel, we know many things about them, whether they're ultra Orthodox or Arab, where they live, how many children they have, what's their income. So we can calculate Directly, each and every expenditure from the state, whether it's education or health or welfare or public housing or public transportation, and all the taxes that they pay, not only income tax. So income taxes, municipal taxes, vat, fuel surcharges, whatever you can think of. We also found taxes that we didn't even know existed. So if you take like total taxes, all taxes, average non Haredi household pays each month about 14,000 shekels in total taxes. I don't know how to convert this to US Dollars because the rate keeps changing, okay, but that's monthly. Haredian Arabs, they pay about 5,000 shekels less per month. And this comes in taxes. On the other hand, if you talk about government expenditure, so how much it costs the state, this particular household. So the average non Haredi household gets about 8,000 shekels in total expenditure, while haredi households get about 13,000. So the average Haredi household is already net dependent. But we can actually do it for the entire distribution. And we see that only the top decile of the Haredi community pays more in taxes than they receive back. So 90% of this group is net dependent. If the haredi community was 1%, 2%, 4% of the population. Many other countries have, of course, groups that are of similar size and similar dependency. But Haredi community is growing. It's growing fast. It's going the fastest in the developed world. And the Israeli Central Bureau of Statistics projection is that by 2065, it will be about a third of the total population of Israel. So this is completely unsustainable. Harvey households 50 years from now seem to be on a very similar path to what they are now. So this is not just a temporary situation where you invest a lot of money now, and in the future they will produce much more. This, I think, is probably the biggest economic issue that Israel is currently facing, and it will keep being worse as time goes by, unless something pretty drastic changes, especially, I think, in the education system and in the tax system.

B (22:22)

Just to understand, there's a lot of countries around the Western developed world that are right now very overburdened by their welfare infrastructure. That is either a thing of the past or just really overburdened. When you look at it from a broad macroeconomic perspective, how unique is this.

C (22:37)

Israeli case, transferring income from young adults to elderly people for pensions and for health expenditures? And the issue is that the base of the pyramid, the people who work and contribute to people at the top, the older people get smaller and smaller. So the dependent population in many countries will be defined as like children before working age and the elderly. In Israel, the dependent population is itself an entire population group of actually all ages. And that's absolutely unique. So the Israeli state puts money into education that it knows it will never see back because these people, even if they will work, they will never pay income taxes. And again, I don't know any situation like this in any other developed country.

A (23:23)

Ariel, I think these are great points. One of the arguments that are being made is that when it comes to demographic growth, you go to Italy, that's suffering significant macroeconomic challenges. And you mentioned France. The pension system is 50% of the GDP is tax or welfare compared to low 30s in Israel, high 20s in the US it means that there's nothing left to tax basically in those countries. And Italy had its lowest birth rate since 1860 last year. So I think there's a lot we can do because we do have a demographic challenge. But I think if you look at the Western Hemisphere, there are also huge engines of growth that other economies don't have that allow for Israel to then push forward. The big question is, where do we go from here?

B (24:05)

Okay, so Ariel is joining us back. I think he had a power outage. I'm telling you, Yonatan, the winds and rain here are pretty insane. Israeli weather is just as unpredictable as the Israeli economy anyway, the third economy, I would say the three different economies. Ariel, thank you for really pulling through and doing what you can to join us. Cause I do have one last question is very important to hear. For me, I know for Yonatan as well, your research doesn't really touch upon. It gives you the most comprehensive, maybe unprecedented. Also look at the numbers, at the facts, looking beyond income tax and so forth. But it doesn't tell us what's fair and kind of like where do we go from here, what needs to happen. It doesn't say what should change and what should change in a fair way. I realize this is not an easy question for an economist. It's maybe better for a philosopher. Tap into that and tell me, how do we go from here?

C (25:00)

I think there are two important and possible vectors to turn the corner. Perhaps the first one is taxes. The current tax system is too progressive. And income tax alone, as I said, makes most of the difference because different households purchase similar things, actually. So all of us pay vat, but income taxes, where high income people with less children pay the brunt of it, whereas lower brackets don't pay almost anything. Doesn't have to be this way. So in Scandinavian countries, in many other developed countries, Robust welfare states too. You actually pay income tax from the first shekel or corona or euro that you earn. You also, by the way, pay income taxes on allowances, on stipends, on direct transfers. Something in Israel is unheard of. Most allowances are tax free. That alone, I think will change much of the at least economic and political calculus where you can keep increasing the high income rate because they apply to so few people. In a sense it doesn't cause like this mass political issue where it will in other countries if you increase the income taxes. And the other thing is education. As I said, what's happening now is that almost none of the justifications for publicly funding education apply to the ultra Orthodox community and especially to men. So they study nothing that is relevant to the modern economy. These are people that are very studious, almost by definition, and then they reach like age 18 or 20 or 25 and they want maybe to go out into the modern labor market and they don't have the skills to do it. And it's very, very hard to in one year change what hasn't been done in 12 or 18 years. It's almost impossible. There is a political will by some, by the way, in the ultra Orthodox community itself, what's called Mamlachti haredi, which is a similar structure to the non haredi but religious schools in Israel where they will teach everything, but you also get a very extensive religious education. It's a bottom up phenomena. Some of the politicians do not care for it, but there is growing demand from the community. So I do think there's a bit of a silver lining here where it could happen like in the next two years. The issue is that many of the generations that we already have, they're a bit lost because they haven't got this education. They're always geniuses. But there's a reason that normal education takes 12, 18, 20 years of your life.

B (27:33)

Yonatan, what do you think? What's fair?

A (27:35)

So I think to be honest, Israel is at a crossroad. It is faced with a very tough choice. Either get a new deal, right? Figure out how Arab Israelis have a new contract, ultra orthodox YouTube have a new contract. The broader economy becomes more decentralized, the tax structure changes. More municipal taxes, less nationwide taxes. We're at 95 to 5 right now. 95% of taxes go to Jerusalem and then they're misrepresented, you know, and then communities don't get the benefit of their tax money. So either we go for a new deal, which I think is the direction we need to go or we're going to have to break away with a generous progressive welfare state. Because the two together, the data from our real study show, just don't work well. I can tell you ethically sort of where I think we need to go. I think it is a new deal because I see a lot of value both in Jewish studies, but also in the sense that this community can contribute to the economy given the right policies and what we saw in the past. Ariel, I think you will agree with. They respond really well to policy and to incentives. And so I think I'm super optimistic. I think we have a 10 year window to get to the New Deal. I wouldn't want us to give up on our welfare state and on the basic solidarity drivers that made Israel what it is.

C (28:55)

I absolutely agree. Everybody responds to incentives and the ultra orthodox have shown to respond to incentives. As I said, employment rates used to be higher when they had less of a welfare state to depend on. It grew when they had less of a welfare state to depend on when policy changed. Change is definitely possible. It's a political question. I also absolutely agree about the centralization issue, which is also something Israel is very unique, probably the most centralized state, even though the population itself is probably the most heterogeneous. So there's quite a bit of a paradox here as well.

A (29:27)

All right, Ariel, I think it's time to thank you and that you find your way home in the storm.

B (29:32)

Ariel, thank you so much for joining.

C (29:34)

Thank you for having me.

A (29:40)

Okay, that was fun. We had Ariel come back from the cellar there, given the storm. Sorry I'm away from Israel and I can't commiserate with you guys. Loved your question. In the end, I think that's what it's all about, right? We get the baseline and then where do we go from here?

B (29:57)

Yeah, you know, I think that really is, is kind of what we're going to be fixated on. We have been discussing this for decades, really like what to do with the non participation of certain segments of the population and specifically about the Haredi population. But it's so interesting how unique the situation in Israel is about, you know, having such a strong left wing, quote, unquote economic history being led by very right wing economic policies and, and where that kind of got stuck or kind of even stopped functioning as left and right and just became status quo. What's next is to be seen.

A (30:32)

And the good news, it's an election year. So we began the show with the numbers of the week and we will end it with the words of the week, both you and I kind of picked up on Nir Zohar, that is a co founder of wix, calling everyone to go back to a five day at the office work week, abolishing the acronym WF H that was with us through Covid the work from home. And here's what he had to say. We're in a moment where our industry is being reshaped by AI. We need to move fast, continue our growth and the best way to do this is together. WIX has always been at its best when we're around each other, learning, building, laughing, solving things, creating things. I'm really looking forward to bringing that energy back into the office every day. And so to get rid of wfh, you use another acronym, one letter less, which is AI. Your thoughts on that? Do you think this makes sense? Is this narrative? Is this.

B (31:27)

I don't think there was one person in Israel that didn't write on x or on LinkedIn exactly what they personally individually thought about Mir Zohar's decision. And you know, he was posting it on social media for a reason. I think he did want to kind of show the Wick's leadership's decision full out transparent and not kind of garner any rumors. I think it is a good decision. I understand that it's uncomfortable for many and I understand WIX historically always was a working from office kind of company.

A (31:58)

General Omer Bradley has this famous quote that says that amateurs talk strategy and professionals talk logistics. In that sense, you know what Nirshar shows us? What WIX shows us is that amateurs talk strategy and professionals talk culture. I think NIR is making a comment on culture. Whether or not it has to do with AI. I don't buy that. I think it has to do with the culture. WIX is a leader of the Israeli tech industry. So I think both thumbs up here backing up the culture decision led by wix. Yeah. All right, I think that's it for today's show. Thank you for tuning into Ark Media's what's your number? We hope you found it interesting. If you did, be sure to like subscribe, rate, review, and you know the drill. But most importantly, share it with others who you think will find it interesting. If you want to make suggestions or share your feedback, please reach out to us@whatsyournumberarkmedia.org.

B (32:58)

What's yous Number is an ARC Media podcast. ARC Media's executive producer is Adam Jain. My name's Levine Aretti. Our production manager is Brittany Cohen, Sound and video editing is by Liquid Audio. Our theme music is by Midnight Generation. I'm Yael Wisner Levy.

A (33:15)

I'm Yonataladiri. I hope I see you next week in Tel Aviv. Maybe we can record from the same office even.

B (33:20)

Yes, and hopefully, you know, there won't be any power outages.

A (33:29)

This podcast offers general business and economic information and is not not a comprehensive summary for investment decisions. It does not recommend or solicit any investment strategy or security.