Minister of Finance Yair Lapid omitted some numbers from his great announcement about the cancellation of the income tax hike. The numbers below clearly show why there is no need to celebrate.
52.3% of individuals (employees and the self-employed) in Israel earn less than the income tax threshold - 1.7 million individuals, mostly salaried employees. This number is astonishing in itself and rather sad, and they will be unaffected by Lapid's celebratory announcement. The austerity measure which was ostensibly cancelled would not have affected them on January 1, 2014. Some of these individuals earn dismal salaries, and some of them are eligible for a range of tax breaks through the credit points mechanism. The lowest tax threshold is a gross monthly income of NIS 4,800 for men and NIS 5,700 for women without children, and rises to NIS 11,000 for a mother with four children and a father with two children up to the age of 3.
68% of employees earn less than the national average salary, according to National Insurance Institute figures for 2011, which are considered the most reliable. It states that the average monthly gross national salary was NIS 9,461. In practice, most of these individuals will not feel any "easing of the austerity measures" announced by Lapid. At best, they will not lose a few dozen shekels of net income, and that's it.
21% of employees earn up to two times the average salary, i.e. between NIS 9,400 and NIS 19,000 gross a month. This is the classic middle class. They will see an increase in their net income of between a few dozen shekels and NIS 200 at the most from Lapid's measure.
All the slogans about how more money for people will encourage consumption and economic growth are therefore extremely embarrassing. A few dozen shekels from the cancellation of the income tax hike will encourage growth and consumption? At best it will help narrow the overdrafts that most wage-earners have by just a bit.
When the numbers above are added up, we arrive at the figure that Lapid and the Ministry of Finance officials took care to blur: 90% of Israel's employees will barely feel the cancellation of the income tax hike that Lapid celebrated in the opening television news stories on Monday night.
Who benefits? About 10% of employees, or just 300,000 individuals, who earn more than a gross NIS 19,000 a month. Some of them will enjoy a few hundred extra shekels a month, and a smaller group - those who earn tens of thousands of shekels a month (mostly senior managers, or a few tens of thousands of individuals) will see an additional NIS 1,000 or more a month. In other words, the top 20% of income-earners, and especially the top 10%, will be the main beneficiary of the cancellation of the income tax hike. Most of the people who watched Lapid's show will not notice the extra income. This is no Hannukah gift, or a Purim gift parcel, not any easing of the austerity measures.
Published by Globes [online], Israel business news - www.globes-online.com - on November 27, 2013
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