The latest series of government reforms designed to benefit the personal finances of Israeli citizens has received a strong level of coverage among the English-speaking community outlets in recent days.
But just how much more money will be in your pocket this coming (fiscal) year as a result of the changes?
Although the measures contain plenty of well-directed reforms, my guess to this tachlis question is not a lot.
Certain groups will be marginally better off, while other sectors of society may even suffer a net loss as a result of the newly implemented measures.
The changes contain some excellent provisions, such as the long overdue introduction of a levy on plastic shopping bags that are handed out in Israel like candy (although the charge was introduced by some countries, including Ireland, over six years ago).
However, the financial provisions in the reforms, upon closer inspection look like a mixed bag of mostly marginal improvements for average income earners – and especially for the 66% of the workforce that continues to earn below the average industrial salary.
Vacation days increase slightly, but Sunday weekend plan quietly shelved
On the one hand, the minimum amount of vacation days for full-time employees has risen to twelve days from ten.
Despite this small increase, however, Israel’s meager vacation allotment still remains among the lowest in the OECD. Its closest neighbors in this statistic remain Mexico (six days), Turkey (twelve), Japan, and Canada (both 10).
More importantly, a highly anticipated plan to designate six Sundays a year as weekend days, to accord with the practice in the majority of the world, has once more been quietly shelved after hitting a legislative speed-bump.
In a country that largely shuts down on Friday afternoon with a near complete cessation of public transport on Saturday, the plan had been heralded as the latest attempt to create a long overdue opportunity to give Israelis a taste of a ‘real weekend’ — at least six times a year.
The plan, which was being shepherded through the Knesset by Eli Cohen (Kulanu) now finds itself set to undergo a nebulous process of ‘reconsideration’, which in the world of Israeli politics, means it perhaps could happen some time in the next decade.
Given that the measure had been expected to be implemented at the start of the calendar year, the two day “increase” in vacation time actually looks more like a deficit of four days versus what had originally been on the radar.
Foreign income reporting now mandated
The murky world of reporting foreign-earned income in Israel became several shades murkier on Sunday morning with the formal conclusion of a historic ten year tax amnesty arrangement on foreign-earned income that began as an incentive to encourage immigration to the country in 2007.
According to Haaretz, both Mas Hachanasa (the Tax Authority) and Bitach Leumi (National Insurance Institute) have both yet to formulate a coherent policy for how to deal with olim that earned income abroad during the ten year grace period if they arrived in 2007 but before the program was instituted.
This creates the potential that those who did so will be faced with sizable retrospective bills on their earnings during this period to both authorities. An accounting headache could be in the works for those caught in this emerging financial limbo-land.
Minimum wage rises 16% to 5,000 NIS
The monthly minimum wage has increased from 4,200 NIS to 5,000 NIS (annualized equivalent: $15,600) in the first of a series of staggered hikes with a further increase to 5,300 NIS planned to take place later in the year.
The 16% rise will of course be a help for those on very low incomes, but in reality is little more than a small step towards improving Israel’s untenable cost of living problem, the result of an economy plagued by high and rising food and property prices and under-powered salaries – at least outside the corridors of the vaunted high-tech (IT) sector, which employs only 8% of the workforce.
Despite Moshe Kahlon’s promise to put an end to the phenomenon of the so-called ‘working poor’, in which full-time minimum wage workers cannot afford to live, the hourly equivalent of the newly upgraded minimum wage rate – at just NIS 26.88 ($7) – still seems unlivable, particularly for those in Tel Aviv, the most expensive city in the Middle East, as well as other pricey locales in the merkaz (central region).
Income Tax Bands Change
The ceiling for the lowest rate of tax (10%) will be raised from 5,220 NIS, slightly above the new monthly minimum wage, to 6,220 NIS, after which earnings will be taxed at the next rate of 14%.
For income earners taxed on the first band, that saving translates to a monthly reduction of roughly 40 NIS on their income tax bill, which is also approximately the increase a typical family can expect to see on their electricity bill for that period, the tariff for which is rising by 3.7%.
Those paying at the higher tax brackets will see their tax bill increased slightly.
The measures are no doubt being implemented as part of the Finance Ministry’s attempt to try to ameliorate Israel’s wide, and growing, income disparity gap.
As measured by the Gini coefficient, the country currently has the third widest income equality gap among OECD countries with a recent report showing that a startling 20% of the population is now living below the poverty line – the highest rate in the developed world.
Self-employed persons must have a pension
The reforms are mixed for self-employed persons: independents (‘atzmaim’) working as osek paturs (VAT exempt traders) and osek murshes in order to supplement their income or make a full-time living from their work.
They will be forced to choose a provider from among the oligopoly of Israel’s pension providers (40% of this group currently does not have one), which curtails their ability to engage in other retirement planning methods.
On the plus side, they will enjoy reduced national insurance contributions, among other benefits, from Bituach Leumi (the National Insurance Institute).
Good News Overall
Besides the main headliners related to vacation days and tax reforms, there are plenty of excellent changes in the measures being introduced — both big and small.
Kachlon’s Savings Plan for Every Child program is now officially underway and call-out charges for firefighters are apparently being scrapped.
Jerusalem residents, in particular, have something to be happy about:
A bizarre nuance of the 90-minute Rav Kav transport card program in the city has finally been rectified. Up to now, transfers from bus tickets could not be carried over to the city’s light rail system, an expanding tram network that currently connects the East and West of the city.
What could possibly come next for the capital? A bus service to connect Jerusalem and the country’s main international airport perhaps?!
Not all the changes being introduced will have a far-reaching effect on your average’s citizen’s finances, but notwithstanding that, the changes are almost entirely for the better (we just would have loved those six Sundays off!).
Have a good year!