Israel Advances Law Curbing Independence of Social Security Agency, Risking Welfare Benefits

The Finance Ministry is advancing an amendment with the 2020 budget to ensure that excess National Insurance Institute funds are handed over to the government

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The National Insurance Insitute office in Jerusalem, April 17, 2020.
The National Insurance Insitute office in Jerusalem, April 17, 2020.Credit: Emil Salman

The Finance Ministry is promoting legislation that would reduce the independence of the National Insurance Institute and subordinate it to state budget and politicians. The proposed law would require the agency to hand over all its excess revenues to the treasury, worth billions of shekels a year. Haaretz has obtained the proposal, which is being reported here for the first time.

For the past two years, Meir Spiegler, the director general of the institute, has been pushing the cancellation an agreement from the 1980s between the National Insurance Institute and treasury in which the amount of its revenues that exceeds it stipend payments are transferred to the treasury.

The social security agency says that it is not at all certain that these excess funds contributed by those it insures will necessarily be returned to citizens in the form of allowances when required – and the Finance Ministry will not use these funds for other purposes in the state budget, to cover the deficit. These claims are reinforced in these days of socioeconomic crisis, during which the public is especially dependent on National Insurance Institute allowances, and the state budget is growing rapidly.

As an alternative to having the Finance Ministry manage its funds, the National Insurance Institute proposed establishing an independent system for managing its excess funds. The treasury opposed canceling the agreement, calling it irresponsible and would put the state budget deep into debt – as well as resulting in inefficient management of the funds. The total amount of these excess funds was 22.8 billion shekels in 2019.

The proposed legislation would prevent the agency from withdrawing from the agreement with the treasury and managing its own funds – and the excess funds would continue to be passed on the treasury. According to sources involved in the negotiations, senior National Insurance Institute officials were not provided with the details of the proposal, which were only obtained through a third party. Officials say the proposed legislation would put an end to the agency’s independence and impede the ability to distribute stipends to the public.

Meir Shpiegler, director general of the National Insurance Institute, speaks at a conference in Jerusalem, November 18, 2019.
Meir Shpiegler, director general of the National Insurance Institute, speaks at a conference in Jerusalem, November 18, 2019.Credit: Shauli Lendner

The Finance Ministry is promoting the new law as part of the Economic Arrangements Law for 2020, an amendment to the budget, which will be submitted for cabinet approval soon. The treasury intends on advancing the law as part of an expedited legislative move that will not allow the Knesset and public time to debate the law and its implications in depth.

The Justice Ministry is of the opinion that the bill is too complex to advance as part of the Arrangements Law, and told treasury officials – who then softened the original version of the bill somewhat. The Finance Ministry says that the current version of the law has been approved by the Justice Ministry.

The Finance Ministry presents the proposal as strengthening the financial stability of the institute and the public’s faith in its ability to continue to pay out allowances in the future, and the agency's legal department “has received the proposed decision for comment.”

Spiegler told Haaretz that this legislation was an attempt to “end the independence of the National Insurance Institute as a professional, social body, as it’s been since the 1950s, and to submit it for the first time to the government, to ministers, in opposition to professional opinions. It’s an unprecedented, dangerous step by those who want to take the money that Israeli citizens pay in order to create a safety net for difficult times, like these, and use it for purposes other than fulfilling the social needs of Israeli citizens.… this should deeply worry the Israeli people.” 

Spiegler added, “The budgetary branch refuses to commit not to harm or cut back benefits and now, during the coronavirus crisis, through the Arrangements Law, whose full details were never passed to us, they’re trying to have the government subdue the National Insurance Institute and limit its ability to respond to the needs of the public.”

Until now, under the old agreement, the agency's excess revenues have been transferred to the treasury, which in return issues bonds with subsidized interest rates to the National Insurance Institute, to be repaid incrementally. The agreement allowed each side to cancel it at the beginning of every fiscal year, on the condition that notice of the cancellation was provided three months in advance. In talks held over the past two years, a shorter period of advance notice was agreed upon.

Israelis line up outside the National Insurance Office in Petah Tikva, June 7, 2020.
Israelis line up outside the National Insurance Office in Petah Tikva, June 7, 2020.Credit: Tomer Appelbaum

As of now, the official accounting for these funds shows the treasury owes the agency over 200 billion shekels – which are supposed to be returned to it in the future to pay for the public’s stipends. The agency says the treasury owes it another 140 billion shekels because of decisions made over the years that it was never compensated for.

In spite of the National Insurance Institute’s intentions to cancel the agreement, including multiple notices that it will end the agreement, it has not yet been canceled in practice due to heavy pressure from the Finance and Justice Ministries. The transfer of the excess funds from 2019 began at the start of 2020, but was frozen at the start of the coronavirus crisis to preserve funds to pay for the huge increases in unemployment compensation. As the economy recovers, the agency is expected to once again have surplus revenues.The Finance Ministry is attempting to utilize the Arrangements Law to ensure its victory in the debate over the fate of the excess revenues.

The Arrangements Law is scheduled to be presented to the cabinet in the near future along with the state budget for 2020 – though this depends on the political situation and the continued existence of government coalition. The Arrangements Law is a block of legislation and amendment that is presented alongside the budget. It allows for a long list of legislation related to economic policy to pass in a simplified process and often contains legislation that the government fears it could not pass otherwise, or which would require long periods of time for approval. The approval process for the Arrangements Law is limited to two months and is accompanied by strong pressure from coalition members, in contrast to the unlimited time that Knesset committees are entitled to debate normal legislation.

The requested change is an amendment to clause 34 of the National Insurance Institute Law. This clause establishes that the excess funds be invested in “constructive” projects. Instead of this wording, the Finance Ministry seeks to establish that the funds will be handed over to the Finance Ministry in exchange for bonds awarded to the institute.

An especially sensitive part of the proposal – which has not yet been decided if it will remain part of the proposed law – states that any increase in the agency’s benefits to decrease in its revenues would require the approval of the social services minister. In addition, any cabinet decision on budget cuts, civil service jobs, or wage policy would fall on the agency too. The requirement of ministerial approval would subordinate National Insurance Institute decisions to the government’s budget priorities and politics.

Finance Minister Yisrael Katz enters a press conference, Jerusalem, July 1, 2020.
Finance Minister Yisrael Katz enters a press conference, Jerusalem, July 1, 2020.Credit: Emil Salman

In recent years, the treasury and the social security agency have been arguing over the question of whether the latter is obligated to government limits on increasing annual expenditures. The new law would impose these limits and require the government to provide a source of funds for any such increases over the annual spending limit.

The National Insurance Institute and Finance Ministry have also been arguing in recent years over whether internal administrative decisions made by the agency – for example, decisions to make it easier to receive an allowance – are subject to the restrictions on increased spending. The agency says no, but the proposed law – if it passes – would put an end to this dispute by deciding in favor of the treasury’s view – further harming the independence of the National Insurance Institute.

The National Insurance Institute is an independent statutory body since its establishment in the 1950s. The separation between its funds and the state budget was meant to limit the possible conflicts of interest between the demands of the Finance Ministry – which often has short-term considerations – and the long-term interests of the agency, which insures the public for example for retirement, unemployment and disability, often over decades.

A previous version of the proposed law, which was blocked for legal and other reasons, proposed a fundamental change in the way the agency is funded. The change would have required the government to make up any shortfall in the agency’s budget between revenues and expenditures. This proposal was entitled: “Strengthening the financial stability of the National Insurance Institute and increasing certainty concerning the payment of stipends,” and the treasury said it would have increased the public’s faith in the ability of the institute to pay its stipends in the future.

The National Insurance Institute’s financial stability has been the focus of numerous discussions over the past decade. In 2012, a report by a public committee appointed by then Finance Minister Yuval Steinitz, was released on the matter – but most of its recommendations were never brought for cabinet approval. More recently another committee released a report on the matter in 2019, but was unable to reach an agreement on a new model for funding the NII.

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