Yair Lapid’s Austerity Budget Would Hit Kids Hardest

Tax hikes and allowance cuts could cost some Israeli families up to NIS 1,500 per month.

The average family will be hundreds of shekels a month worse off in the fiscal austerity measures currently being proposed by Finance Minister Yair Lapid. And the efforts to rein in the state deficit through a combination of higher taxes and spending cuts could leave some families as much as NIS 1,500 a month worse off.

Lapid is faced with a burgeoning budget deficit for the second half of this year and all of next year totaling NIS 39 billion, and that is what the projected spending cuts and tax increases would address.

The most painful effects would result from the proposed trimming of child allowances, cuts in the salaries of public-sector employees and increases in the value added tax and income tax rates.

The major brunt of the state’s belt-tightening − if the proposed budget plan is passed − will be borne by family households with children under 18 years of age and in which there are also two adults employed in the public sector. In the most extreme cases, the financial impact could be NIS 1,500 per month ‏(NIS 18,000 per year‏). Ultra-Orthodox and Arab families, which tend to have large numbers of children, will be particularly affected.

Among the proposals submitted by Lapid to Prime Minister Benjamin Netanyahu on Thursday were provisions that would limit government child allowances to NIS 150 per child. This would hit families with young children particularly hard. The current National Insurance Institute child-allowance payment structure is based on two separate formulas, depending upon whether the children were born before or after the end of May 2003. Benefits for children born before June 2003 are currently more generous: NIS 175 per month for the first child; NIS 263 for the second; NIS 295 for the third; NIS 459 for the fourth; and NIS 389 per child for the fifth and beyond.

For those children born from June 2003 onward, the NII payment is currently NIS 175 per month for the first child; NIS 263 for the second, third and fourth; and NIS 175 for the fifth and beyond. That would all change, however, if Lapid’s current budget proposal is accepted: the payment would be NIS 150 per child, no matter how many children a household has. If the cut is in effect for the second six months of this year and all of next, it would result in a total saving to the state treasury of NIS 4 billion.

A family with four children under 18 who were all born before June 2003 would lose NIS 592 per month in child-allowance payments. A family with four children born after the 2003 cutoff would lose NIS 354 per month. For most poorer families, the impact could be expected to be especially difficult.

The proposed one percentage point increase in value added tax from 17% to 18% would also affect them significantly, but would be expected to bring in an additional NIS 4 billion in tax revenue over the course of the remainder of this year and next.

In 2011, the average monthly household expenditure was about NIS 14,000, and although not all household expenses are subject to VAT, it is expected that the proposed VAT hike would cost the average family more than NIS 100 per month. The plan to raise the income tax rate would only affect taxpayers with monthly incomes of at least NIS 14,000 and would cost them up to about NIS 100 per month depending upon their incomes.

As noted, households with breadwinners working in the public sector would be particularly affected. There are about 800,000 people working in one way or another on the public payroll, and they stand to lose an average of about NIS 250 to NIS 300 per month unless Histadrut labor federation chairman Ofer Eini manages to head off the move.

The public-sector wage and benefit cuts would save the treasury a cumulative total of NIS 4 billion for the balance of this year and 2014. In households in which there are two breadwinners working in the public sector, and there are many such cases, the cut could amount to NIS 600 per couple, per month.

In the hypothetical case of such a family in which there are also four children born before June 2003, the loss in child allowances would be NIS 600 per month. Such a family might also pay NIS 100 more in VAT, and NIS 200 in income tax, for a total of NIS 1,500 extra per month. And that could be compounded by funding cuts to the health, education or social welfare budgets that might result in additional expenses to the average family.

Lior Mizrahi
Haaretz