Bank Of Israel: Draft Bill ‘Fundamentally Flawed’, Harms Economy And Doesn’t Incentify Charedi Draft

JERUSALEM (VINnews) — In an unusually extensive and sharply worded document, the Bank of Israel today published a comprehensive economic analysis of the proposed draft law currently under discussion in the Foreign Affairs and Defense Committee. The Bank concludes that the proposal is “fundamentally flawed,” does not provide the IDF with the manpower it needs, and does not create effective incentives for drafting young charedi men.

According to the Bank, the economic cost to the economy of one month of reserve service for a 30-year-old man is approximately 38,000 shekels, most of it direct loss of productivity, compared with the far lower cost of drafting a young charedi man for mandatory service, which could even generate significant economic benefit if it leads to earlier entry into the workforce.

The Bank of Israel presents a clear calculation: An annual increase of roughly 7,500 Haredi draftees, which would yield 20,000 additional mandatory soldiers after three years of service, is expected to reduce the economic cost of reserve duty by at least 9 billion shekels per year, and up to 14 billion shekels in a model in which Haredi enlistment improves future employment rates.

“This represents an enormous saving for the economy, a reduction of the burden on hundreds of thousands of families, and a decrease in the damage to labor productivity,” the report states.

The Bank of Israel determines that the draft targets in the memorandum fall far short of the IDF’s operational needs:

The first target (by June 2027), 8,160 young men, equals only about 4,900 mandatory recruits per year. Currently, since July 2024, about 3,000 Haredim are drafted annually,  meaning only a negligible increase compared with the present situation.

Only in the fifth year of the law is a threshold of 50% enlistment set — about 7,000 per year — and even this is not guaranteed and does not account for combat roles.

The Bank warns that without significant changes, the IDF will not receive the manpower it needs in the coming years, especially after October 7 and the dramatic increase in reserve mobilization.

The report lists several failures in the proposed incentives:

• Revoking a driver’s license or restricting travel abroad until age 23 is ineffective, since driving and international travel rates in the Haredi community are significantly lower.
• Canceling stipends or tax benefits is irrelevant to young men who are neither employed nor studying.
• Sanctions imposed only on the Haredi community as a whole, rather than on individuals, are weak because an individual cannot influence whether the overall target is met.

“This model offers no real incentive to enlist, certainly not one that would lead to a significant increase in recruitment,” the report concludes.

If the law passes in its current form, the Bank warns, Israel will continue on a path that imposes heavy economic costs:

• Loss of billions in national output due to extensive reserve mobilization
• Reduced productivity and labor participation
• High budgetary costs for reserve compensation instead of cheaper mandatory service
• Loss of tax revenue due to low employment among charedi men who are not drafted

The report calls on the committee and the government to introduce major changes to the bill:

• Setting higher, realistic recruitment targets aligned with IDF needs
• Creating effective individual-level incentives and penalties, not only community-wide measures
• Adjusting targets to include combat roles, where manpower shortages are most severe

“In the security reality that has emerged since October 2023, drafting Haredi men is not merely a social issue, it is a fundamental security and economic necessity,” the Bank concludes.