Hirchson to offer negative income tax plan

By SHARON WROBEL
December 12, 2006 09:44

The idea is to encourage employment and bring down the number of people living below the poverty line.

2 minute read.



hirchson podium 88 298

hirchson podium 88 298. (photo credit: Ariel Jerozolimski)

Finance Minister Avraham Hirchson said Monday that within a month he would present a plan to the Cabinet to implement a negative income tax system in an effort to encourage employment and bring down the number of people living below the poverty line. "I intend to present the government with a negative income tax plan as a means to close the poverty gap," Hirchson said on the second day of the Globes Israel Business Conference in Tel Aviv. "The concept of subsidies and benefits is bankrupt. It was not more than an incentive that taught people not to go to work." Negative income tax systems essentially subsidize low wages to encourage employment and reduce the number of working poor by giving different amounts of money to workers whose earnings are beneath a given salary threshold, such as NIS 5,000 monthly. "I am in favor of the negative income tax, but it is only one means to fight poverty," Eli Hurvitz, Chairman of Teva Pharmaceutical Industries Ltd. told The Jerusalem Post at the conference. "In order to bring people back into the workplace, we need to create work opportunities and implement additional incentives." Conversely, Benny Gaon, president and chairman of Gaon Holdings, said that implementing a negative income tax system could not be the solution for solving the poverty problem in Israel. "The war in the Lebanon and other issues have put the social agenda on hold. What is first needed is a strategy and an agenda of what the targets of this government are," Gaon told the Post. Back in October, the Bank of Israel reiterated its support for a negative income tax having concluded that such a system would have a positive - "even if small" - affect on employment, as opposed to other methods to alleviate poverty, which reduce the incentive to work. "Experience from a number of countries that operated a negative income tax program shows that they contributed significantly to decreasing the number of poor among families with workers and to reducing the intensity of poverty among those that remained poor," maintained the central bank. An economic study indicated that bringing negative income tax to Israel would "significantly reduce poverty among working families" here as well, the Bank of Israel added. According to the central bank's example, implementing the plan in the North with a population of 530,000 would cost NIS 135 million a year and would be expected to reduce the number of poor working families by some 18 percent. The total number of poor individuals in the area would be expected to drop by 6%. In contrast to the central bank, the Federation of Israeli Chambers of Commerce, argues that a negative income tax, would be "a most dangerous step." Although depicted as a classic social step, the FICC said it was liable to be lamented for generations and weaken the will to go out to work. Instead, the Chambers is in favor of limiting reform to a tax reduction on low income workers. Meanwhile, Hirchson also said at the conference that he soon would present policies for the encouragement of foreign investment to Israel, which will deal in detail with a number of issues, including tax law, securities law, and how to market Israel to investors abroad.


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