Israel approves plan to increase net wages for working parents

The approved measures, which will significantly improve the net wages of parents with children six years old and under, are key components of Moshe Kahlon's "Net Family" tax cut plan.

Moshe Kahlon (left) and Benjamin Netanyahu (right). (photo credit: REUTERS)
Moshe Kahlon (left) and Benjamin Netanyahu (right).
(photo credit: REUTERS)
In a move that will save Israeli families thousands of shekels each year, the government on Wednesday authorized an increase in tax credit points for working parents.
The approved measure, which will significantly improve the net wages of parents with children six years old and under, is a key component of Finance Minister Moshe Kahlon’s “Net Family” tax cut plan.
In addition to the extra tax points, the plan calls for benefits such as subsidies for after-school activities; expansion of work grants; and reduced taxes on baby clothes, mobile phones and shoes.
“Just as we promised, we are working with our utmost strength to implement the plan and help the middle class and working families as soon as possible,” Kahlon said on Tuesday night, ahead of Wednesday’s expected approval. “Citizens waited enough years to receive what they deserve from the state.”
The portion of the Net Family plan that received government approval on Wednesday is intended to increase and equalize the amount of tax points that mothers and fathers of young children receive – thereby boosting the amount of disposable income they take home from their salaries. The value of a single credit point is NIS 215 per month, the Finance Ministry said.
Today, men are entitled to credit points for a child on a gradual scale, from the day of his or her birth until the child is four years old. At the time of the child’s birth, men receive one point, followed by two points from age one to three, and then one point from age three to four.
Women, meanwhile, are entitled to half a point at the time of the child’s birth, and then two points from their first through sixth birthdays.
According to the newly approved plan, mothers and fathers will both receive 1.5 tax points from the birth of their child through age one, and then 2.5 points from age one until the child turns six years old.
“The implementation of the Net Family plan in general and the increase in tax points in particular will add thousands of additional shekels each year to every family, which will be returned to the economy in consumption,” Kahlon said. “Parents will see more net wages in the very near future.”
Prime Minister Benjamin Netanyahu voiced his support for the proposal to increase tax points at the beginning of Wednesday’s cabinet meeting. That was despite the fact that three weeks earlier, Kahlon announced the plans without first informing the prime minister. At the time, the move was seen as revenge by the finance minister against Netanyahu, who has repeatedly taken credit in the past for Kahlon’s economic initiatives.
“I believe that all of you here will support it because it is government policy to encourage work,” Netanyahu said at the cabinet meeting. “This is true for both the economy and society – and it is our policy.”
While the Net Family plan in its entirety is expected to cost the government about NIS 4 billion per year, the ministry stressed that the program is economically viable, due to a NIS 1.6b. tax surplus in the first quarter of 2017 and an updated forecast by the ministry’s chief economist of further growth.
Beyond the portion of the plan authorized on Wednesday, the initiative also calls for subsidizing after-school programs according to socioeconomic status and geographical region, enabling parents to afford afternoon childcare and stay at work longer.
In addition to boosting tax points and providing subsidies for afterschool care, the Net Family plan was designed with the intention of increasing the work grants (earned income credit) provided to parents.
Individuals earning up to NIS 5,000 per month who have one or two children would receive NIS 495, while those with three or more children would receive NIS 720, the ministry said. To incentivize labor market participation, those families with two working parents would receive an extra 30% in grants.
As a further measure to reduce the cost of living, the Net Family plan calls for a reduction in taxes associated with purchasing shoes, baby clothes and cellular phones.
Kahlon already signed an order two weeks ago canceling the 15% import tax on mobile phones, which importers had to pay in addition to the 17% value-added tax. The decision led cellular companies across the country to immediately cut prices on smartphone handsets.
On the same day that the government approved the increase in tax credit points for parents, the ministry announced that 70 young couples had been selected in a lottery for low-cost, long-term rental apartments in the high-demand central city of Ramat Hasharon. About 560 couples had signed up for the lottery. The 70 who were selected will be able to move into their apartments in August 2017.
The winning couples will pay NIS 3,980 for a three-room apartment and NIS 5,270 for one with four rooms, including management fees, storage and parking in the new “My Aviv” complex, which will include 281 apartments in all, according to the ministry.
“Long-term rental projects are an integral part of the housing crisis. We, as a government, are responsible for young couples who are unable to purchase apartments in high-demand areas,” Kahlon said. “The Finance Ministry’s policies in the coming years are to allocate a larger budget and more land toward dramatically increasing the supply of long-term rentals.”
Gil Hoffman contributed to this report.