The last three years have witnessed a revolution in the world view of treasury officials. Poverty, now a malignant disease, deepening unemployment, eroded wages, layoffs and trimmed social security benefits have apparently altered the approach of even the most radical economists who sanctify the market economy and support maximum freedom for every citizen. It's a fact.
In 1992 finance minister Avraham (Beige) Shohat set up the Fogel Commission to examine pension policy. Finance Ministry director general Aharon Fogel headed the panel and David Klein represented the Bank of Israel.
The commission's conclusions on mandatory pension contributions were negative. Fogel rejected declarations by Histadrut secretary general Haim Ramon (who remembers?) that mandatory pension deductions should be set up and anchored in legislation. "These are declarations by someone who is thinking of election day, someone who does not understand the negative ramifications of mandatory pensions to the cost of labor in the economy," said Fogel.
This has since then been the dominant feeling in the treasury and at the central bank - until last Tuesday - absolute opposition to anything that increased the cost of labor, because higher labor costs lead to layoffs, and that's the worst thing possible, socially or economically.
This avoiding at all costs increases in the price of labor found expression not long ago in reforms for the Histadrut labor federation's pension funds. As soon as it was decided that pension deductions had to be increased by 3 percent so as to balance the funds, the treasury decided the main burden should fall on the employees (2 percent), with the employers paying the remainder (1 percent). Employers also received a reduction in the National Insurance Institute contributions they have to make (1 percent) to avoid increasing the cost of labor.
So what suddenly happened to mandatory pensions?
Finance Minister Benjamin Netanyahu apparently understood that he could not stand up to the demands of Knesset members from the Likud who want to pass a law for mandatory pensions. He decided if he couldn't beat them, he would join them and reap the political fruits of changing his image to that of "socially concerned" minister.
Instituting mandatory pension contributions will be no simple thing socially or economically. A heated debate on this subject has been raging among economists for years. The basic economic approach states that there can be no intervention in the allocation of an individual's income and he must be allowed to do with his money whatever he wishes.
Every person has different tastes and a different efficiency curve, and every restriction lowers his level of comfort. There are some people who would rather improve their standard of living now, at the expense of any deductions for the future. This assumes that when they reach retirement age, the state will have to become involved and allocate a minimal monthly income for them, since society cannot accept people being penniless.
Indeed, there are currently 210,000 seniors who need guaranteed income supplements from the NII - in addition to the old age allowance they get - and this number is expected to grow as the population ages. Furthermore, the level of protection against penury that is provided today, the old age allowance plus guaranteed income supplement, is so low that anyone subsisting on that alone is condemned to a life of poverty and want.
Therefore, considering the infringement on freedom of choice, the increase in the cost of labor and the damage to employees take-home pay, it would be fitting to institute a pension plan on condition that it would apply only up to a ceiling equivalent to the minimum wage.
It would also be fitting for the Knesset to determine only the framework of the law and to let the details be settled via negotiations between the Histadrut and the employers.
Mandatory pensions will not solve all the problems of poverty. They will apply only to those who work in small places that do not have organized pension plans, and there are about 600,000 of these. Mandatory pensions will not apply to anyone who is not working - older new immigrants, the ultra-Orthodox, housewives and the unemployed.
Herein lies the danger. There is a fear that populist public pressure will develop for the turning of the mandatory pension into an official pension, in other words, that even those who do not work will receive a pension, at the expense of increased income tax on those who do work. That is a risk worth preventing.
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