Haredi Integration and Tax Payments – The Burden and the Potential | Executive Summary

This research was released ahead of the Israel Democracy Institute's annual Eli Hurvitz Conference on Economy and Society, 2025.

Photo by Nati Shohat/FLASH90

This study explores the implications of current demographic and employment trends in Israel—particularly the growing share of Haredim (ultra-Orthodox Jews) in the working-age population. It runs two simulations that that look at a) the economic implications of a scenario in which Haredim integrated in the labor market at the same level as non-Haredi Jews, and b) the economic implications for the typical taxpayer if the labor market and economic characteristics of Haredim were to continue as they are today for decades to come.

Haredi society’s distinctive education paths and labor participation patterns have resulted in significantly lower contributions to direct labor taxes, despite higher relative consumption of public services.

Most Haredi boys (85%) in high school–age cohorts study in religious institutions entirely exempt from core curriculum requirements. In contrast, nearly all Haredi girls attend semi-official schools that include at least 75% core studies, yet only a minority pursue higher education or training that leads to high-income employment.

This educational divergence contributes to underperformance in the labor market and significantly lower household incomes relative to the general Jewish population, especially among men. As a result, despite consuming more state services, Haredi households pay less in income taxes.

The objective of this study is to describe the anticipated economic effects—both at the national level and for individuals—against the backdrop of Israel’s demographic trends, under two assumptions: continuation of current employment patterns, or alternatively, full integration of Haredim into the labor market (the scenarios will be detailed below).

As stated, the analysis centers on two primary hypothetical scenarios:

Integration Scenario: What would state revenue from direct labor taxes be if Haredi integration mirrored that of other Israeli Jews—namely, if the employment rate, income level, and job scope among Haredim were similar to those of non-Haredi Jews? Conversely, if instead of higher revenue, the state would choose to lower taxes for all, what would be the size of the discount in taxes for the average non-Haredi Jew?

Status Quo Scenario: According to current demographic trends, the share of Haredim in the workforce is expected to grow. If we apply the projected demographic reality and structure in the coming decades to the current labor market (2025), what would be the tax burden on today's average worker in order to maintain the same per-worker tax revenue level as it is at the current (2025) demographic structure? In other words, in a simulation where today's labor market reflected the projected future population makeup, how would the state meet its needs in terms of tax revenue per worker? How would the tax burden be distributed across different income groups?

This analysis uses administrative data from the Israeli Central Bureau of Statistics, based on records from the Israel Tax Authority, the Population Authority, and the National Insurance Institute. It focuses exclusively on direct labor taxes—income tax, National Insurance, and health tax—excluding welfare transfers.
 The population was segmented into three groups: (1) salaried employees, (2) non-working students or yeshiva students, and (3) other non-employed individuals. Tax liabilities were calculated accordingly, incorporating eligibility for child-related tax credits.

Key Findings

• In 2023, each Haredi individual paid only 28% of the direct taxes paid by a non-Haredi Jewish individual. Though Haredim represented 14% of the Jewish working-age population, they accounted for only 4% of tax revenues. If current trends continue, by 2048 Haredim will make up about a quarter of this population but will contribute only 8% of direct tax revenues.
  
  
• Only 23% of Haredi men pay income tax (versus 62% of non-Haredi Jewish men). Among Haredi women—over 80% of whom participate in the labor market—only 23% reach the tax threshold and pay income tax (compared to 46% of non-Haredi Jewish women). Even among employed Haredi women, just 28% reach the tax threshold.
  
  
• Haredim pay lower taxes across all income brackets. In the lowest bracket, only 14% of Haredi men pay income tax (versus 37% of non-Haredi men), and only 9% of Haredi women (compared to 19% of non-Haredi Jewish women), largely due to tax credits for child dependents and young children.
  
  
• If Haredim participated in the labor market at rates similar to non-Haredi Jews, the economy would gain NIS 9.5 billion in additional direct labor tax revenue in 2025, and by 2048 this gain would rise to NIS 44.6 billion.
  
  
• In 2025, non-Haredi workers will pay NIS 3,540 more in taxes as a consequence of low Haredi workforce participation (i.e., if Haredim participated at the same level as non-Haredim, NIS 3,540 less would need to be paid in taxes per worker). By 2048, this will grow to NIS 11,266, assuming demographic and labor market trends continue.
  
  
• Assuming current demographic trends and labor patterns, maintaining the present average per-worker tax income will require gradually raising direct labor taxes. By 2048, this would result in an average additional burden of over NIS 3,000 per worker per year, or NIS 13,500 for the top income quintile.
  
  
• Given that most Haredim belong to lower income quintiles (many by choice), the increased tax burden on non-Haredi Jewish workers under a shifting demographic will be 3.6 times that on Haredi workers. Even among the top quintile, the additional tax levied on non-Haredi Jews will be 1.4 times that on their Haredi peers—NIS 13,800 per year.