Bank of Israel research department deputy director Dr. Michel Strawczynski proposes a negative income tax and salary subsidies, especially for low-income earners, to boost employment.
Speaking to a group of World Zionist Organization public diplomacy activists from the US, Strawczynski said the cut in National Insurance Institute (NII) allocations might increase participation in the labor force, but was insufficient to ensure the long-term entry of Israelis with low incomes into the labor market. He said a policy of actively subsidizing salaries, especially implementing a negative income tax, was also necessary.
Strawczynski said current tax discrimination between low and high-income earners was another reason for implementing a negative income tax. He said high-income earners got tax breaks on savings, which depended on salary levels, while tax breaks were ineffective for low-income earners.
He added that now was the optimal time for implementing a negative income tax, because of growing demand for Israeli workers to replace foreign workers. He said the prolonged absence of some Israelis with low incomes from the labor market not only required reducing alternative incomes, i.e. further cuts in NII allocations, but also improving the terms for participating in the labor market by offering direct incentives for working.
"The combination of emergence from recession and the reduction in the number of foreign workers provides a unique window of opportunity for long-term change in Israel's labor market. It is important that the government utilize tools to boost demand for Israeli workers with low incomes and bring them into the labor market," he said.
Published by Globes [online] - www.globes.co.il - on December 9, 2004