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."
