Employers May Face NII Rate Hike

Recommendation was rejected six months ago by Finance Minister Yuval Steinitz and PM Benjamin Netanyahu.

The Finance Ministry is examining raising employers' payments to the National Insurance Institute even though such a recommendation was rejected six months ago by Finance Minister Yuval Steinitz and Prime Minister Benjamin Netanyahu.

The hike in NII payments was one of the recommendations of the Trajtenberg Committee on socioeconomic change established after last summer's social protests.

Israeli employers pay only 1.3% of GDP to the NII, compared to an average of 5.3% in OECD countries. Not only is the employers' contribution considered extremely low by international standards, it is also significantly less than the amounts paid by employees - which is quite unusual elsewhere. The so-called employer tax is in addition to the employee's own contributions for NII benefits such as unemployment insurance, disability, maternity leave, old age pensions and many other social insurance benefits.

Employers' contributions were cut in 2005 in an attempt to lower the cost of employment and encourage hiring. As a result, the NII lost NIS 3.9 billion in annual revenues.

Only two recommendations concerning taxes in the Trajtenberg report were rejected: Raising employers' NII contributions and a surtax on very high incomes.

While in theory the NII's accounts and the state budget are kept separate, in fact the higher NII payments would reduce the state budget deficit and make up part of the expected shortfall in tax revenues forecast for this year and next.

The question is whether it will be any easier to convince Netanyahu and Steinitz to support the increase this time.

The state wants more competition in bus and taxi services, and will make structural changes in how public transportation operates. Among the proposed changes are additional mass transit lines.

A government-backed bill on the matter has been presented to the Knesset, and will have its first reading next week.

The changes are part of the recommendations of the Trajtenberg Committee. One recommendation was to open licenses for bus lines to competition and bring in new operators in an attempt to lower prices and improve service. This would also allow cutting back on state subsidies for public transportation.

Another legislative change in the works as part of the Trajtenberg recommendations involves allowing the Antitrust Court to order monopolies to sell off assets.

Other changes include rewriting customs regulations allocating import quotas, the goal being to keep them out of the hands of importers who might abuse a large market share to stifle competition.

Israel vs OECD infographic 21.6.12