ASHER MEIR 58.
(photo credit: Courtesy)
This year’s Adjustments Law has been accompanied by many interesting and
positive developments. The Adjustments Law is a peculiar Israeli ritual; after
the executive branch proposes a budget and the legislative branch exercises its
right of oversight, by examining it and deciding what to approve, at the last
minute a special “adjustments bill” is proposed, containing hundreds of
significant changes to the budget, proposed in many cases not by the government
as a whole but by the Treasury, presented to the Knesset as a
take-it-or-leave-it package deal – and with a time frame too short for lawmakers
to realistically read, understand and criticize it.
Adjustments Law has been greatly reduced, but the scope for meaningful Knesset
oversight is correspondingly greater.
One proposal in the new law is to
significantly raise the level of income that is subject to National Insurance
Institute payments – without a commensurate rise in the amount of benefits. As
the NII points out, the proposal is influenced by three related yet distinct and
sometimes conflicting aspects: On the one hand NII payments are meant to be
insurance, in which families pay a monthly premium and in return are entitled to
insurance in the case of misfortune.
But the NII is also conceived as an
agent of social policy, and many social programs meant to aid the needy are
administered by the NII and not by any government ministry.
is a fiscal program that eats up a very large fraction of taxes and pays out
huge sums in benefits, and like any fiscal program, it needs to be kept
From an insurance point of view, you want to have a
correspondence between the amount you give and the amount you get. If more
income is subject to the tax (higher premiums) then recipients should be covered
for a higher level of income (higher insurance benefits). Insurance is not meant
to help the unfortunate at the expense of the fortunate, but rather to help a
given person at a time of misfortune.
But the insurance aspect of
“national insurance” starkly contradicts the “social policy” aspect. An
equity-oriented tax system should be progressive, yet the ceiling on subject
payments makes NII payments a highly regressive tax: payments are a fixed
fraction of income up to the ceiling; then they become a continually declining
fraction of income.
From a fiscal point of view, the NII ultimately has
to finance it outlays. If it wants to maintain an “insurance” orientation, it
will not have money to pay for “social policy” programs; decoupling the payment
and benefits is one way of ensuring the NII’s fiscal independence.
NII opposes the change in the law; it says the social-policy aspects of its
mandate should be financed from general tax revenues; i.e., from the
“It is wrong to involve the National Insurance Law with
legislation whose object is solely fiscal, and whose considerations are tax
oriented,” the NII said.
”The national insurance system is not part of
the general fiscal mechanism, and certainly the NII should not be viewed as an
agent of tax collection. Legislation that views the NII as a unit of the
Treasury is unacceptable.”
The principle of insulating national insurance
from general fiscal policy is a sound one; the need for independence is the very
reason that the NII in Israel, and the Social Security Administrations in most
countries, are established as independent, self-financing entities distinct from
But there is a certain internal tension in the NII’s claim;
if the NII is to be independent of the Treasury and not party to fiscal
considerations, it should also not be accepting Treasury financing for its
The proposed reform would strengthen the essential independence
of the NII. It would make the NII tax more progressive but the tax system as a
whole more regressive, because the new tax is still a regressive one.
conflict arose between the Knesset Finance Committee and the Knesset Labor and
Welfare Committee regarding who is responsible for discussing the NII reform in
the Adjustments Law. The conflict is instructive, because the provisions of the
proposed reform involves both fiscal and welfare
Asher Meir is research director at the
Business Ethics Center of Jerusalem, an independent institute in the Jerusalem
College of Technology (Machon Lev).