Knesset Approves Negative Income Tax in Preliminary Reading

Bill proposed by former finance minister Silvan Shalom calls for negative tax for workers earning less than NIS 5,000.

Zvi Zrahiya
Zvi Zrahiya
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Zvi Zrahiya
Zvi Zrahiya

The Knesset plenum passed in a preliminary reading Wednesday a bill that would pay negative income tax to workers earning less than 5,000 NIS per month in gross income.

Several ministers were among the 58 MKs who voted in favor of the bill, despite the fact that the official government position is against the bill.

Negative income tax is form of benefit payment intended to reduce levels of poverty while simultaneously supporting industry. In contrast to the current method in which benefits are paid, negative income tax is paid only to low-income workers and not to the unemployed.

According to the bill, the state would pay workers 30 percent of the difference between their monthly wage and NIS 5,000. For example, an individual earning the minimum wage of NIS 3,585 will receive NIS 424.5 in negative income tax.

The wording of the bill was supported by members of the Rabinovitz Committee on the reform of taxation in the stock market. Yair Rabinovitz - formerly the income tax commissioner - pointed out that "50 percent of Israeli workers have no income beyond the minimum tax threshold and this proposed bill will assist them."

The proposed bill was first presented to the Knesset by former finance minister Silvan Shalom (Likud). Avraham Hirchson, the current finance minister, recently announced his intent to introduce negative income tax in Israel.

Shalom said that he had been given the impression that senior civil servants at the Treasury oppose the initiative and were trying to obstruct it. "I believe that this proposed bill will shift the gears at the Treasury and facilitate the ministry in presenting its own recommendations," said Shalom.

The Bank of Israel's research department supports the concept of a negative income tax, but recommends it be implemented gradually.

According to its recommendations, the tax should only be paid to parents of minors who earn a minimum of NIS 1,000 per month, and then only to a family's primary wage earner. A study conducted by the bank found that most low-income workers are women from relatively comfortable homes and that subsidizing their income in not in the state's interest.

The Bank of Israel is also recommending a more complex formula for calculating payments to beneficiaries of the proposed tax.



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