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Compensation to public-sector workers and employers for lost income will total NIS 1.7 billion for the first month of the war, Finance Ministry figures show.

One-third of the people in question work in government, the public sector and non-profit organizations, and the government covers their wages in any case.

The head of the treasury budgets division, Kobi Haber, will today present the cabinet with the agreement he signed Thursday with the employers and unions. Tomorrow he will present it to the Knesset Finance Committee for ratification.

The treasury estimates are based on figures from the Central Bureau of Statistics, which state that total monthly wages in the Haifa region and the north total NIS 4.1 billion.

This includes areas south of Haifa, including Zichron Yaakov, that have not been affected by the fighting.

This means that Thursday's agreements relate to NIS 2.6 billion in monthly wages.

According to the treasury, 50% of workers have continued going to work during the war, so the the compensation will cover wages worth NIS 1.3 billion. Under the agreement, employers will receive compensation totaling 130% of the wages of employees who could not work due to the fighting. This adds up to NIS 1.7 billion.

Under the agreement, employees will receive their full salaries. Twenty percent wil be paid by the employees in the form of relinquished vacation days, and the employers will contribute 27.5%. The rest will come from government funds, which will also go to compensate employers for lost revenue.

The NIS 1.7 billion relates only to the first month of the war - from when fighting began on July 13, through July 31. If the war goes on beyond this date, arrangements for the second month will be worked out in further talks between the government, the employers and the unions.

The three will also meet again if the war expands southward beyond Haifa, Afula and Tiberias.

It is already clear that some changes will be introduced into the 2006 budget, including a NIS 1.75 billion addition to the defense budget. The longer the war goes on, the greater the probability that a new 2007 budget will be necessary, which will break the current budget framework.

Business, labor reach agreement

Last week Finance Minister Abraham Hirchson announced that business sector and labor representatives have signed a compensation agreement over financial damages resulting from the war in the North.

The agreement, which covers damages incurred over the past two weeks, will cost the state NIS 800 million, according to Tax Authority Director Jack Matza. In addition, the state has paid out a few hundred million shekels in property damage compensation in northern Israel.

The agreement does not cover the tourism and agriculture sectors.

The pact will reimburse employers for worker absenteeism on condition that they pay employee salaries. Workers are to receive their salaries in full, 52.5% of which will be paid by the state, 27.5% to be paid by employers, and the remaining 20% will be paid by the workers themselves via paid vacation deductions.

In addition, the state will compensate employers for indirect financial damage equivalent to 80% of the salaries of absent workers, bringing the total compensation to 180% of wages.

Business sector representative Shraga Brosh said the compensation will not cover the full extent of corporate losses and business, will have to shoulder their remaining indirect costs.

Hirchson said that compensation agreements for the tourism and agricultural sectors are scheduled to be signed Monday, which means that all economic sectors will be covered.

Retailers were not represented in the talks, and they said the agreement is not suitable for the commercial sector. For example, stores at which all employees arrived to work but sales collapsed is not entitled to any compensation based on details of the agreement.

"Turnover was not a criteria, while absenteeism was," Federation of Chambers of Commerce President Uriel Lynn said. "This agreement is more suited to industry than to retail and service businesses."

"Small business owners and the self-employed are addressed in the agreement," Matza said. "A self-employed person with a small business and no employees will receive real compensation at the rate of profit reported in the previous year," he said, adding that a NIS 20,000 salary cap was instituted.

Hirchson said that the state is not planning to impose new taxes to finance the war spending. He said that discussion of the 2007 budget has been postponed for one month in order to review the war's impact on the budget.