Cuts to Take Much Bigger Bite From Poor Than From Rich

Poorer households will lose 8.4% of their monthly income, on average; rich ones will lose 1.6%.

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The main clauses in the new 2013-2014 national budget will take an average bite of NIS 333 a month out of household income, but will hurt the poor proportionately more than the rich, according to calculations performed by the State Revenue Administration, a division of the Finance Ministry.

In absolute figures, people earning more will be paying more, starting at the third decile. But in relative terms, the poorest citizens will be hurt the most. The top decile will be losing the most in absolute terms, but the least in terms of percentage of income.

The 10% lowest-earning Israeli households, with gross monthly income averaging NIS 3,300, stand to lose an average of NIS 277 a month, an 8.4% chunk of their earnings. The average cost to the top 10%, who gross NIS 41,989 a month on average, will be NIS 670, putting a mere 1.6% dent in their household budgets.

The figures reflect the 1.5% hike in income tax for all tax brackets, the reduction in child allowances from various rates to a standard NIS 140 a month per child up to the age of 18, the increase in value-added tax from 17% to 18%, and higher taxes on cigarettes.

The revenue administration based its calculations on averages for each decile, based on a household expenditure survey by the Central Bureau of Statistics. For each decile, it calculated the average number of children under age 18, and the average expenditure on consumption, in order to calculate the impact of the 1% increase to VAT.

The calculations, however, don't take into account other measures included in the budget proposal and Economic Arrangements Law, such as changes to tax benefits on pension savings, plus other costs not included in the budget, like increased electricity rates and other prices likely to rise. They also don't include any additional costs shouldered by families due to expected cutbacks in the national budgets going to education, welfare, health care and other areas.

According to the calculations, families among the bottom 10% in earnings will pay more in absolute terms than any other families in the lower half of the income scale, and as much as the 10% earning just above the median, because families in the bottom decile tend to have the most children. But as a percentage of total income, the impact of the tax reforms grows smaller for each higher income group.

Currently, the average family in the bottom decile receives NIS 530 a month in child stipends. Households in the top decile, which has the fewest children under 18 on average, receive an average of NIS 101 a month in child stipends. As a result of the cut to child stipends, families in the bottom decile will lose an average of NIS 197 a month, while families in the top decile will lose an average of NIS 35.

Distributing food and goods to the poor, Be'er Sheva, January 1, 2009.Credit: Dan Keinan

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