The Bottom Line / Minister's handiwork
Once Moshe Theumim has convinced us all through his PR campaign launched this week, that the tax reforms are beneficial, essential and conducive to growth, then we should ask him to conduct a much more challenging promotion: convincing us that raising the cost of labor will lead to more jobs.
Once Moshe Theumim has convinced us all through his PR campaign launched this week, that the tax reforms are beneficial, essential and conducive to growth, then we should ask him to conduct a much more challenging promotion: convincing us that raising the cost of labor will lead to more jobs. After all, Finance Minister Silvan Shalom has told us that his aim is to cut unemployment. We are of course referring to the taxes introduced in the plans to cut the budget deficit:
1. Up to a monthly income of NIS 28,000, cost of labor will rise by 1 percent (to the employer) as employer National Insurance contributions will rise in July from 4.93 percent to 5.93 percent.
2. For those earning between NIS 28,000 and NIS 30,000 a month, additional costs (to the employer) will be 5.93 percent, as the ceiling on NII contributions set at four times the average wage (NIS 28,000) will be canceled in July - a fact that may not be known by most employers.
3. On incomes between NIS 30,000 and NIS 35,000, additional labor costs will reach 6.43 percent, split 5.93 percent to the employer and 0.5 percent to the worker (the levy on the higher incomes will be set retroactively to January 2002).
4. On incomes higher than NIS 35,000, additional labor costs soar to 16.13 percent: 0.5 percent on wages (employee), 4.9 percent NII contributions (employee), 4.8 percent health tax (employee) and 5.93 percent NII contributions (employer).
5. In addition, higher labor costs will also mean higher costs of workers' annual vacation, on a sliding scale as outlined above.
Now some will argue that there is no need to get all excited because the serious impacts only kick in on salaries higher than NIS 28,000 a month, and there aren't many of those. True there may not be many, but who are they? The entrepreneurs, the professionals, the managers - without whom there is no economy, no growth. And more than that, it will hit in high-tech and software, those that we particularly want to encourage, as our engine of growth, are among those earning such salaries - in other words, that's where this is going to hit, and where redundancies will follow.
Anyone earning over NIS 28,000 a month is a "strong" employee with options open. Such a worker will not agree to having his take-home pay drastically slashed, and will therefore demand from his employer to make it up in gross terms. The employer will have no choice but to agree, and will dismiss staff from lower down the ranks, as in the current economic climate employers cannot absorb the higher costs.
Today, the May unemployment figures will be published. These will not yet reflect the steep increase in labor costs, but in coming months, the impact will work its way through.
The security situation is certainly difficult and the terror attacks inflict severe damage on growth and employment, but in any case, everyone knows that when the price goes up, demand falls, so that when Shalom raises the cost of labor, with his own fair hands, he deepens unemployment in the economy.