the poverty in israel. this is important for purposes of adapting policy instruments so that they are effective for these groups. although specific steps for dealing with poverty are very important in the short run, there are other measures of equal importance for the medium and long terms, and these must not be forgone. one such is the attainment of continued growth as the basic solution to the problem of poverty. but that is not all. another required step is a policy that will enable all israel's citizens to realize their full potential. this would contribute to economic growth and help the more vulnerable to avoid falling into the poverty trap. in this context the following steps should be promoted : increasing the resources in the education budget allocated to the weaker strata in order to improve the ability of the next generation to achieve greater equality of opportunity ; enhancing the government's system of professional retraining, with the focus on essential skills ; encouragement of professional retraining by the business sector, for example by adapting the encouragement of capital investment law to focus on human capital ; and extending the programs for providing adults with basic education. it is also important to promote policy measures to deal with the problem of poverty in the short term. such a policy should be based on the principle of providing incentives for those capable of working, giving assistance to poor workers ( in such a way that will encourage them to stay in the labor market ), and providing relief for those unable to work, such as the handicapped and the elderly. the following are some examples of policy measures consistent with the above principles : the first is instituting a system of negative income tax. this is one step which the bank of israel supports, and which has featured in discussions held by the team headed by yossi bachar in which representatives of the bank also participate. a second example is government participation in the costs connected with encouraging the weaker sections of the population to go out to work, for example, day care centers for children, and transportation. a third example is establishing a legal and supervisory infrastructure that would encourage the institution of reverse mortgages, which would enable the elderly to obtain a monthly income flow from the apartment they own. the bank of israel has been engaged in the subject of poverty for a long time, and has published position papers, policy proposals and many research papers on it. i hope that as the government's economic advisor we will be able to contribute on this matter, in two main fields : the government's social policy, and no less

. it will be of little avail if we achieve economic growth long term and attain a european standard of living without attending to the social issues. but we cannot handle them properly without such growth, and would even quickly increase their severity. for example, one could deal with the question of social gaps by means of drastic hikes in taxes and transfer payments, but such a policy would also have a serious adverse effect on growth, and after a few years this would lead to a situation in which we would all be more equal, but also poorer. that is no way to attract immigration ; on the contrary, it would boost emigration. and that is a position we do not want to be in. before dealing with the social problems we should examine them realistically, as a sine qua non for formulating the appropriate policy. the problem of poverty is too complex to be viewed from only one aspect, and it must be analyzed from several aspects. for example, although here it is generally accepted to measure poverty in relative terms, and thus to consider the problem of poverty as a question of social gaps, we should be aware of other possibilities. to illustrate : poverty can be viewed in absolute terms, i. e., in such a way that the poverty line is determined in terms of the level of real income considered the minimum required to buy a certain basket of goods, such as food, clothing and housing. if we define the poverty line of 1997 as the level of income defining poverty in absolute terms, we would get the result that the rate of poverty, using this definition, hardly changed from 1997 to 2004, and actually went down a little. it declined until 2001, and rose somewhat thereafter. the bank of israel is engaged in this complex matter of measuring different aspects of poverty, and i hope that in the bank's annual report for 2005, due to be published in the first quarter of 2006, we will be able to refer to the subject at greater depth, and that this will contribute to the public debate and to the formulation of policy on this issue. an aspect of poverty seen from another angle is the identification of the population that suffers most from poverty. we know that the highest incidence of poverty is in the ultra - orthodox ( " haredi " ) and arab sectors of the population, mainly because of the low participation rate of haredi men and arab women in the labor force. according to an estimate we carried out, these sectors of the population account for more than 40 percent of