A Knight in Shining Armor for Well-heeled Damsels in Financial Distress

Yair Lapid's plan to provide tax credits against money spent on childcare will do nothing to encourage women to join the workforce.

Finance Minister Yair Lapid is trying to position himself as a knight in shining armor for women's causes. He has promoted equal opportunity by putting women in top positions at the Finance Ministry and has been very attentive to women's needs, especially among his potential voters from the upper-middle class.

This is the backdrop to his adamant opposition to proposals for raising the retirement age for women, even though any pension expert in Israel or overseas could easily explain why it isn't financially feasible. It is also against this background that he's again promoting what is often portrayed as a key benefit for working women by calling for tax credits on childcare expenses, a benefit that could amount to NIS 3 billion a year in tax savings to working mothers. The idea that making the cost of a daycare center or hiring a nanny tax-deductible will encourage more women to go out to work by reducing the effective cost of paid childcare.

At first glance the childcare proposal seems logical. It not only conforms with the practice of recognizing expenses needed to generate income, but it also helps the economy by brinigning more women into the workforce.

The problem is that at least the latter part of this assumption isn't borne out by facts. The government already grants working mothers tax credits (and likewise for fathers of young children, under a Trajtenberg committee recommendation) so that a mother of three needs to earn NIS 10,000 to NIS 12,000 a month to reach her normal tax bracket. Less than 20% of women enjoy this level of income, according to Treasury figures, and obviously they belong to the top income strata. Even if the benefit is awarded on a household basis, and therefore applied against the husband's income, less than 45% of income earners would be eligible.

In any case a benefit paid through the tax system is advantageous to the rich. To take advantage of the deduction, a family has to submit a tax return. It's a good bet that the rich, with their accountants by their side, will manage to take full advantage of their rights a lot more easily than people from lower income groups.

Not surprisngly, an analysis by the Finance Ministry has found that the bulk of savings from a childcare deduction will flow into the pockets of the wealthiest fifth of the population. It's hard to understand the logic of distributing NIS 3 billion in annual tax benefits to help the top two deciles, unless we assume that Lapid's voters come mainly from this income bracket.

It's even harder to understand his motivations when the data show that labor force participation is highest in the top income brackets. Israel, in any case, has extremely high labor force participation by women; at 75%, it ranks fifth in the world. This high level of participation certainly holds true for educated women belonging to the top deciles of household income. The wealthiest women already hold jobs without any tax benefits, so any increase in women's labor force participation will be marginal at best.

The problem with women in the labor market is concentrated in the Haredi and Arab sectors. It hardly needs be pointed out that most of these women don’t reach the minimum tax threshold at all, and in all likelihood neither do their husbands, so any help through the tax system won't make it easier for them to go out and work.

It would be better to assist working women from the lower income groups through a negative income tax, boosting their incomes via government support payments, or by increasing the supply of state-subsidized daycare centers. Both these measures were suggested to Lapid as alternative means of helping to ease the burden of childcare expenses for working women, and he rejected them. Could this be because Lapid doesn't have to concern himself with Haredi or Arab women? After all, they aren't going to vote Yesh Atid. no matter what goodies he provides them with.

The tax rate for Israel's middle class families is already among the lowest in the world. According to figures from the Organization for Economic Cooperation and Development, the tax rate for an average family – that is, a couple with two children, one earning an average wage and the other earning two-thirds of the average - is second to lowest among developed countries. So where taxes are concerned, Israel helps young families quite enough as it is.

But when it comes to government spending on early childhood education, Israel lags far behind most Western countries. That is the case even after the flood of budgets triggered by the Trajtenberg Committee, including free education from the age of three and subsidized after-school programs for ages three to nine for the lowest-earning 30% of the population.

There is still plenty that needs to be done in Israel to boost preschool education, improve education services and assist working families, mainly for the poor and lower-middle class. IMproving preschool education would serve three purposes simultaneously: it would improve the education of children, boost household incomes by helping mothers to go to work and narrow social inequality, as these services would be natrually be directed at the lowest income groups.

If the Finance Minister really wants to advance the cause of working women and of equality, this is the policy he should be considering. It's very disappointing that these proposals were the ones he rejected first.

Women working at an Israeli factory.
Yaron Kaminsky