(photo credit: MARC ISRAEL SELLEM)
The Finance Ministry launched its “Family Net Plan” on April 18. The aim of the program is to boost the net pay of families and to respond to OECD criticism of the rich-poor gap, which is considered large by international standards. Part is effective now and part will require legislative approval in the next few months.
Finance Minister Moshe Kahlon, explained the plan as follows: “The State of Israel says today in a loud and clear voice to Israelis that it knows how to give, not only how to take.” The cost of this giving is estimated at NIS 4 billion per year which is considered possible by the Finance Ministry based on a “tax collection surplus of NIS 1.6 b. in the first quarter of 2017.”
The plan has four components: higher tax credits for children, higher work grants for the lower paid, higher grants for afternoon kindergartens and lower import taxes on cell phones, shoes and baby clothing.
Higher tax credits for children:
Israel has a system of personal tax credits which reduce the tax due as this is considered more egalitarian than personal deductions from income (which benefit the rich more if they are on higher rates of tax). Men usually receive 2.25 credit points and women 2.75 credit points before taking children into account. Each credit point saves NIS 215 of income tax per month. Currently men receive an extra one to two credit points for children aged up to four and women receive an extra 0.5 to two credit points for children aged up to six.
It is proposed to increase the personal tax credits for children for both men and women to 1.5 to 2.5 credit points. The Finance Ministry estimates that for a family with three children aged five, three and a newborn, a man will save tax of NIS 16,770 and a woman NIS 15,000 per year.
Higher work grants for the lower paid:
The Israeli government pays work grants, also known as “negative income tax” to people who earn less than NIS 4,800 per month – men receive up to NIS 330 and women receive up to NIS 495 per month. It is planned to raise the income ceiling to NIS 5,000 and to pay both men and women up to NIS 495 each.
For a couple, the Finance Ministry estimates this may add up to NIS 5,556 per year to the net pay instead of NIS 2,000 per year at present.
Comment: The reason given for increasing the grants paid to men to the amount paid to women is to encourage more men to enter the labor market. Currently the percentage of men there is apparently less than the percentage of women. Reading between the lines, this benefit appears to be aimed at male haredim (ultra-Orthodox).
Higher grants for afternoon kindergartens:
Commencing September 2017, the plan proposes to ramp up the government subsidies for afternoon kindergartens – a dreaded expense for some parents. The Finance Ministry explains that parents currently pay NIS 900 – 1,300 per month (per child) depending on location.
Israel’s 255 municipalities are divided into 10 socio-economic groups. The lowest three already enjoy almost full subsidies. In Group 4 municipalities like Yeroham and Lod – the subsidy would be NIS 350 per month per child aged three to eight. In group 5 locations like Ashkelon and Or Akiva, the monthly subsidy will be NIS 300 per child aged three to eight.
In Grades 6-10, the subsidy would be limited to children in first and second grades. In Group 6 locations like Netanya, Karmiel and Rehovot, the monthly subsidy would be NIS 300 per child. In Group 7 locations like Haifa, Petah Tikva, Kfar Saba and Zichron Ya’acov, the monthly subsidy would be NIS 200 per child. In Group 8-10 locations like Tel Aviv, Modi’in, Ramat Hasharon, Hod Hasharon, Ra’anana and Herzliya the monthly subsidy would be NIS 150 per child.
Lower taxes on cell phones, shoes and baby clothes:
On April 19, Kahlon signed an Order repealing the 15% purchase tax on cell phones and SIM cards. Plans exist to scrap customs duty of 12% on imported shoes and 6% on imported baby clothing.
Comments: This is an interesting package of measures targeted mainly at the Israeli poor. However, we are not sure about the “tax collection surplus of NIS 1.6b. in the first quarter of 2017” that will finance it. Only six days before the Family Net Plan was announced, the Finance Ministry issued a budget performance press release on April 12 stating that in the months of January-March 2017, the deficit was estimated at NIS 2.4b. compared with a surplus of NIS 0.9b. in the same period a year earlier!
Moreover, in the first quarter of 2017 the Israeli Tax Authority demanded higher tax installments from some businesses and others which may perhaps have to be refunded after annual tax returns are filed. Now you see it, now you don’t….email@example.com
Leon Harris is a certified public accountant and tax specialist at Harris Consulting & Tax Ltd.