Gov't Rejects Raising Minimum Wage, Backs Negative Wage Tax

Proposal would raise the minimum wage from the current NIS 3,850 a month to NIS 4,600 within 15 months, in several stages.

The cabinet will not support MK Amir Peretz's initiative to raise the minimum wage to NIS 4,600 a month, it decided after several hours of stormy discussions that included threats by the finance minister.

Yuval Steinitz
Olivia Pitusi

As a result, the proposal is likely to be rejected by the Knesset, as the coalition will make sure ministers and MKs vote against it. Peretz said he would raise the bill for a preliminary reading on Wednesday in any case.

The proposal would raise the minimum wage from the current NIS 3,850 a month to NIS 4,600 within 15 months, in several stages.

The Finance Ministry estimated this would cost NIS 5 billion a year.

After several hours of debate yesterday, 20 ministers voted against backing Peretz's proposal, while nine - members of Shas and Labor - voted in favor. Prime Minister Benjamin Netanyahu and Finance Minister Yuval Steinitz were staunchly against the proposal and pressured the other ministers to fall in line. Steinitz told the Likud ministers at a separate meeting, "Anyone who backs raising the minimum wage shouldn't be surprised if his ministry's budget is cut."

After a phone conversation between Netanyahu and Foreign Minister Avigdor Lieberman, the cabinet decided that instead of raising the minimum wage, it would support a proposal by Vice Prime Minister Silvan Shalom calling for a nationwide negative income tax by 2011. The plan will cost NIS 2 billion a year.

For the past two years, Israel has had a negative income tax program, but only in four specific locations.

Steinitz opposed Shalom's proposal at first, but backed it once he realized it was the only way to avoid Peretz's proposal. After the ministers' vote, Netanyahu said, "Negative income tax is the right answer for all the citizens who work but earn low wages. This will encourage employment, as opposed to other proposals that would increase unemployment."

One of the biggest arguments against raising the minimum wage is that instead of helping the less well-off, it creates unemployment by forcing employers to lay off their worst-paid workers instead of paying them more.

"Bibi [Netanyahu] is a hero at the expense of the weak," Peretz said yesterday. "Every time they need to fight the weak populations, the prime minister finds the powers to crush their hopes for a better future in this country."