Bank of Israel recommends negative income tax

The Bank of Israel's position is in contrast to that of some senior Ministry of Finance officials.

Hebrew daily “Yediot Ahronot” reports that, in its annual report, the Bank of Israel for the first time recommends subsidizing essential services for people with low income, including transport, childcare, a negative income tax, and improving job training and placement for the unemployed. The Bank of Israel also recommends reducing the number of public sector employees and implementing the Bachar committee recommendations for reforming the capital market.

The Bank of Israel will submit its annual report to the government and Knesset Finance Committee next week. In the report's introduction, Acting Governor of the Bank of Israel Dr. Meir Sokoler writes, "It is important for the government to continue policies for increasing the rate of employment, to bring it closer to the average in developed countries. It is important to continue reducing the number of work permits for foreign workers, and improve enforcement in this area, in order to continue reducing the number of foreign workers."

In contrast to the position of some senior Ministry of Finance officials, Sokoler recommends a negative income tax "with the aim of increasing incentives for people with low incomes to enter the labor force."

Sokoler recommends strengthening the Israel National Employment Service and "to build a mechanism to efficiently distinguish between those capable of working and those incapable of work, and to ensure a fair standard of living for those unavoidably outside the labor force, such as the elderly and handicapped. It is important that the government focus its efforts in this area, in accordance with long-term poverty targets."

Sokoler says, "The central challenge in economic policy in the coming years is to complete the necessary policy measures in the context of a macroeconomic strategy to fulfill the economy's growth potential by ensuring continued business sector growth over time. A multiyear policy to limit growth in government spending and reduce the government deficit, which will ensure a decline in the government debt as a percentage of GDP, together with maintaining price stability, are essential for building an economic and financial infrastructure for sustainable growth."

Sokoler also believes that stress should be placed on public sector employment. "Budget restraint measures in the public sector have relied until now on lowering salaries, but they should be accompanied by measures to limit public sector employment in the long term."

Sokoler said, "It is important to implement the Bachar committee recommendations, in order to increase competition in financial markets. At the same time, reforms should continue in the labor market, education (in the spirit of the Dovrat committee), electricity, cargo services at Ben Gurion Airport, public transport, oil refining, etc."

Published by Globes [online], Israel business news - www.globes.co.il - on March 28, 2005

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