Treasury vows to approve mandatory pension law in 2007
January 2, 2007. Haaretz: Moti Bassok
Finance Minister Abraham Hirchson promised Thursday that a mandatory pension law would be passed as early as this year. Under the law, Hirchson said, every employee in Israel would have a valid pension fund by January 2010.
Hirchson submitted to the cabinet on Thursday a bill aimed at stimulating employment and diminishing social gaps. The bill includes the four reforms drafted by the treasury for the 2007-2010 time frame.
The reforms include mandatory pensions, negative income tax, lower income tax for the middle class and tax reform on company vehicle use. The bill also includes a clamping down on employment law violations and daycare aid for working mothers.
The cabinet is slated to approve the bill at its weekly meeting on Sunday.
The bill was drafted in order to prevent the extreme poverty that will face Israel's low-wage workers, most of whom do not currently allocate money into a pension fund, when they ultimately retire. A mandatory pension law will significantly reduce the incidence of poverty among the elderly.
The finance minister said that by the end of 2008, employers from all sectors would be obligated to reach an agreement with their employees regarding the implementation of the new law. The employers will have to agree with their employees on exactly how much each party will allocate to the workers' pension funds.
Should an agreement not be reached privately, the finance ministry will institute a general guideline requiring employers to allocate a sum equal to 12 percent of the monthly wages, and the employee to allocate at least 5 percent of their wages to a pension fund. Hirchson expressed hope that such a guideline would not be necessary.
Hirchson also said that the negative income tax reform would likely encourage low-income earners to agree to larger pension allocations.
Implementation of negative income tax is the treasury's plan to booster the weaker employee sectors. Employees whose wages are very low do not pay income tax, and as a result have not benefited from the tax alleviations of recent years. The tax rebates will be provided based on employees' wages, the extent of their employment, size of their family and their economic condition. The plan will be implemented in stages, starting in the second half of 2008, and will be in full operation in 2010. Even before then, in 2007, the plan will partially implemented for 55,000 households.
Monthly income tax rebates will total a few hundred shekels per person monthly. Anyone working half time or more will be granted a personal rebate based on his or her salary, provided that the monthly family income does not exceed NIS 10,000, and the family does not own more than one residence.
Implementation of negative income tax is meant to encourage low-wage earners to work rather than exist on state allowances. The Tax Authority will operate the negative income tax project.