Cabinet Move Threatens Negative Income Tax Plan

The negative income tax program may not begin in 2009 as scheduled, in the wake of a decision this week by the socio-economic cabinet.

The ministerial committee approved a well-hidden section of the 2009 Economic Arrangements Law, making the negative tax's implementation contingent on the nationwide expansion of the Wisconsin welfare-to-work plan. The full cabinet will vote on the proposal this Sunday.

The treasury has admitted that it made the negative income tax contingent on the Wisconsin plan in order to put pressure on Industry, Trade and Labor Minister Eli Yishai (Shas), who supports the tax plan but opposes expanding the Wisconsin plan.

The treasury's proposal has ired the Bank of Israel, the National Insurance Institute and the National Economic Council, which all oppose delaying the negative tax.

Both programs are part of the government's social-welfare policies, designed to get more people working and to improve their earnings.

Three weeks ago, the Knesset approved the law implementing the negative income tax gradually through 2011, but next year's Economic Arrangements Law would limit it only to the four regions where the Wisconsin Plan exists. In October, a few hundred families will receive the first negative income tax payments.

Yishai and the Employment Service object to expanding the Wisconsin plan, and want it to be run by the employment service, in place of its current private operator.

MK Silvan Shalom (Likud), who sponsored the original negative income tax bill, said: "This is an unparalleled scandal. While the cabinet speaks high and mighty of the need to help and invest in the periphery, in reality it does the exact opposite, and hurts the weaker sectors."