Dei'ah veDibur - Information & Insight

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13 Tammuz 5765 - July 20, 2005 | Mordecai Plaut, director Published Weekly










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Rabbi Ravitz Explains His Social Initiatives to BOI Governor Fischer

by Yated Ne'eman Staff

Bank of Israel Governor Prof. Stanley Fischer and Deputy Welfare Minister Rabbi Avrohom Ravitz met for a conversation termed an "opening dialogue" on various welfare issues. The meeting was also attended by the head of the Bank of Israel's research division. The Commissioner and the Deputy Minister agreed to hold further meetings. "I will consider favorably steps to improve conditions for the weak strata of the population in Israel as long as they do not contradict the monetary policy. I will also favorably look into your proposal to pay negative income tax to low-income earners," said Professor Fischer at the end of the meeting.

During the course of the hour-long meeting Fischer showed much understanding for the many problems the lower classes, including lomdei Torah, face. Rabbi Ravitz took the opportunity to explain the problems that he feels must be corrected. "The scope of poverty and the social gap are growing from year to year," said Rabbi Ravitz, who offered several examples of steps the government can take to alleviate the strain on the lower classes.

Rabbi Ravitz said the government has taken steps to increase growth and to bring welfare dependents into the workforce but growth depends on numerous variables such as the peace process, terrorism and Western economics. "In order to increase growth, the Finance Ministry pursued a policy of extensive tax reductions for employers and improving the tax brackets for low-wage earners. But the majority of the tax reform affected direct taxation and there has been no significant change in the burden of indirect taxation. A clear example is the VAT rate, which is a classic type of regressive taxation. According to the economic policy it will be reduced to 16 percent at the beginning of 2007, but why not institute, for example, a differential VAT that distinguishes between essential commodities and luxury commodities?"

Deputy Minister Ravitz emphasized how problematic the cut in Children's Allowances has been. "The blow to Children's Allowances damaged the families with the highest poverty rates and disrupted the viability of some households. The reality shows that the damage to families from various steps has been cumulative: allowances, health, housing and municipal tax benefits, an increase in the price of water, etc. . . . Also, the concept of Children's Allowances as a factor that works as an counter incentive to work is mistaken."

According to Rabbi Ravitz, Children's Allowances play both an economic and social role, as the Ben Shachar Commission demonstrated. The economic function is an alternative to an income tax credit for families with children, for breaks tied to wage levels do not distinguish between workers without children, with a small number of children and with a large number of children. The cut in allowances is in a way an increase in taxation for families with children, especially the poorer families among them.

The social function is that through Children's Allowances the State seeks to ensure income designated for the basic needs of children and to promote a certain basic equality for families with children.

"In order to make a cut while sustaining families, a model of progressive allowances until the sixth child could have been adopted with uniform cuts applying from the seventh child. Not to speak of the need to bring into the Children's Allowances program a significant increase for families with children whose parents subsist from Guaranteed Income or Disability Allowance," said Rabbi Ravitz.

During the conversation, he also discussed the deterioration of Old-Age Stipends. "Israel has approximately 650,000 Old- Age Stipend recipients. The rate of the Old-Age Stipend is a primary element for the subsistence of the elderly individual and is substantially below the relative rate in the majority of the world's developed nations. Israel has a very high rate of elderly people lacking income from a pension, particularly due to immigration to Israel at an advanced age . . . without income subsidies from 2001 to 2004, Old-Age Stipends lost 9.5 percent of their purchasing power and the Old-Age Stipend in combination with supplemental income dropped 5.6 percent in real value. In my opinion the necessary moves are, advancing a mandatory employment pension law, and updating the rate of the Old-Age Stipend incrementally over the course of several years to reduce poverty among the elderly."

On reducing poverty and inequality, Rabbi Ravitz told the participants at the meeting that Israel has one of the highest poverty rates and economic gaps in the Western world. "The government must adopt a strategy to reduce poverty just as it does for the budget deficit and inflation. This should apply to three population groups: children, the elderly and low-income earners. We must adopt a strategy of reducing the poverty level by 1 percent every year over the next 15 years and an incentive for workers subsisting from subsistence insurance benefits. The incentive in the past [2002] for those subsisting on Guaranteed Income benefits has been significantly reduced and harms the trend to seek employment.

"Even with the experimental reforms based on the Wisconsin model, set to begin in four parts of the country, should not hold up altering the policy of incentives for working welfare recipients until the completion of that experiment. The same applies regarding single-parent families and mothers lacking a profession, who should be given the opportunity to study a trade in order to increase their chances of finding suitable work.

"Industry should be encouraged in peripheral areas, particularly the Negev and the Galilee, through a law to encourage capital investment. Stable, high-caliber sources of employment must be found in these areas. This combines with the desirable policy of population dispersal and with the need to ensure a future for young people, many of whom, unfortunately, are leaving Eretz Yisroel."

Rabbi Ravitz also discussed the failure to enforce labor law in Israel. "In my opinion manpower problems and budget problems and mistaken priorities lead to the failure to implement legal norms to defend workers. Based on various sources in Israel there are 600,000 households living off a wage of up to NIS 2,000. The minimum-wage law is not being efficiently enforced and this provides an opening for the exploitation of workers and life under poverty conditions that lead to social unrest on one hand and the burgeoning of soup kitchens on the other. There are other enforcement problems in the implementation of many laws in the area of work and in civil and criminal areas.

"In general," Rabbi Ravitz told the Bank of Israel representatives, "I am asking for your support in moves to improve the situation since the economic outlook of the government cannot function when severed from its social aspects. For example a discussion should be held regarding the desirable budget for 2006-2009 and as part of this discussion the government's social plan should be formulated and put into effect already in 2006."


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