Sweat shop workers-311.
(photo credit: Courtesy)
The Bank of Israel is urging the government to expand the negative income tax
credit pilot program nationwide and increase the size of the credit as a way to
help the working poor and reduce poverty.
“The program is an effective
tool that raises the level of income of the working lowpaid population,” stated
the Bank of Israel report.
“It helped to rescue about 4.5 percent, or 540
families of the credit recipients from poverty, it reduced the depth of
expressed in terms of the poverty gap, by about 5%, and boosted the
the bottom quintile of the recipients by some 12%.”
The Bank of Israel
published the findings following the first year of the implementation of
Earned Income Tax Credit (EITC), or negative income tax program, which
launched in September 2008 in four places.
It was introduced on an
experimental basis in areas where the “Lights to Employment” program was
operating – Ashkelon, Hadera, Jerusalem and Nazareth.
The report was
prepared by a research team monitoring the implementation of the pilot
that comprised representatives of the Bank of Israel, the
Institute, the National Insurance Institute, and the Israel Tax
The program aims to increase the income of lowwage earners in
families with low income and to encourage individuals with low earning
to enter the labor market. In the first year of the program, out of the
eligible for the negative income tax grant, 28,800 or 45%
Individual participants received an average of NIS 2,560 in
the year, and families with two eligible working members received NIS
average. About 80% of the support transferred to families with children
the lowest four deciles of the wage scale. Total grants received
amounted to NIS
“The rates of take-up were high by international standards,
taking into account the fact that the program is still in its early
is operating on a more modest scale in Israel than in other countries,”
According to the initial findings, the program is more
effective in reducing the incidence and depth of poverty among families
children than among those aged 55 and above.
“The credit also helps to
improve the income of working families with income slightly above the
line. The report also shows a decline, among recipients of the credit,
who had to give up essential services such as visits to the dentist and
whose telephones or electricity were cut off,” stated the report.
light of the problem of poverty among families with one wage earner and
income gaps, and based on experience gained hitherto, the findings
extension of the EITC program nationwide.
“Furthermore, increasing the
size of the credit, when the budget so allows, could contribute to the
of poverty among working families by means of an effective and focused
does not have negative side effects on incentives to join the labor
A nationwide extension of the program would help lift 2,300
families out of the poverty trap, according to estimates by the central
“Although it is too soon to assess the effect of the program on
rates of employment, based on international experience it may
expected that such effect will not be significant,” stated the report.
“Nonetheless, unlike other policy tools, EITC is not expected to have a
impact on rates of employment.”
Meanwhile, the Finance Ministry, although
in support of the program, has in recent months raised some concern over
expanding the negative income tax credits program on the grounds that
implementation, supervision and enforcement are very complicated and
“The negative income tax credit program should be expanded
nationwide, but it needs to be instated together with a program for the
integration of pension benefits at work, since both measures are
one another and their overall impact will help advance employment among
populations,” the Finance Ministry said, in response to the central