November 6, 2014

By Hanna Zohar

The Tax Authority recently announced that only one-third of those eligible for a work grant took advantage of their right in 2013.  Therefore the Tax Authority has extended the deadline for submission of applications by three months. (Haim Biur Sept. 28, 2014 http://www.themarker.com/career/1.2445116 ). How could so many eligible people forfeit money owed to them by law? Does the current process offer a real solution to the working poor in Israel?

The Ministry of Finance currently pays low-wage workers a work grant also known as negative income tax. The rationale behind the enactment of the negative income tax in 2008 was to compensate employees whose salary did not reach the income threshold for receiving benefits such as payment into a retirement pension and education fund.

The committee of experts, established after the summer of social protest and comprised of academics and people in the field, deliberated on the work grant issue. The committee recommended changing the method of payment for the benefit of all candidates. The committee concluded that work grant funds should be added to their monthly wages, increasing their income and ensuring their retirement pension. This change would save the National Insurance the cost of supplementing pension payments in the future. This would mean that the low income workers would receive equal benefits at no additional cost.

Finance people like to talk about broad reforms. It seems that simple and logical changes do not suit them. The detailed recommendations of the social protest committee of experts was sent to the relevant ministers and MKs, but received no reply.

The response of the Finance Ministry to the crushing increase in the number of working poor is the work grant which is meant to raise people’s income above the poverty line. However, it turns out that since the start of the work grant program in 2008 and until the latest poverty report, the number of working poor is increasing.

The basic and most significant problem of the negative income tax procedure currently in place is delay of payment. The grant is paid to employees one and a half years after receipt of the salary and in four installments. In addition, to receive the negative income tax, the employee must wait until the tax year is over. And that is not all. The eligibility for the work grant is very limited. Eligible employees must be age 23-55, depending on their marital status, and parents to at least one child under the age of 18,or they can be workers over the age of 55 who qualify through a means test. In addition, if the employer fails to submit the proper reports to the tax authority, the worker will not qualify.

The result is a complicated process with delays. Is it any wonder that a third of the eligible employees did not apply for the grant?

The work grant issue is not only relevant to the Finance Ministry, but also to the Welfare Ministry and the government in general. If the intension is to truly benefit the working poor, the committee’s proposal should to be carefully considered. It would give real hope to hundreds of thousands of poor people in Israel.

The author is the founder of Kav LaOved.



Translation by Sharon Kerpel