Just before Israel's cabinet approved the 2025 budget on Friday, the Ministry of Finance announced it had found a new way of preventing the government from imposing taxes on advanced training funds, pensions and minimum wage earners while meeting the fiscal deficit target of 4% - raising National Insurance contributions. However, as the details of the plan have become clearer, it appears that mainly the weak populations will be harmed, leading to additional National insurance payments of over NIS 1,400 per year for employees and the self-employed, and a 'tax' that the public will find it difficult to cope with.
According to the plan, which was not included in previous drafts of the Economic Arrangements Bill and which surprised many of the parties involved in formulating the budget, National Insurance contributions (which are partly made up of health tax payments transferred to the Ministry of Health) will increase by about NIS 60 per employee on average per month, by about NIS 40 for the unemployed and by about - NIS 14 for senior citizens and students.
For employees, the planned hike will cost NIS 1,440 annually to be divided 50%-50% between employers and employees. The self-employed will pay the full NIS 1,440 per year, and the unemployed will pay NIS 540 per year. When it comes to working couples, the amounts are doubled, with families nearly NIS 3,000 more annually in National Insurance contributions.
According to the plan, there will be no freeze on allowances linked to the average salary in the economy, including disability allowances, disabled child allowances, victims of terrorism etc.
Linked to the Consumer Price Index (CPI)
While National Insurance payments are paid according to salary scales and according to the average salary in the economy, according to the new plan it will be linked to the Consumer Price Index (CPI). The meaning: the advantage for the weaker sectors of society and those with low incomes will be relatively much higher. By law, there are two levels of payments - a high level and a low level, which are set at 60% of the average salary. From now on the low level will be attached to the CPI only.
Today, up to a wage of NIS 7,522 per month, employees contribute 3.5% of their salary, comprising 0.4% social security tax and 3.1% health tax. At the same time, the employer pays social security fees of 3.55%. For any amount above the level of NIS 7,522, the employee pays about 7% social insurance tax and 5% health tax (12% in total). The increase relates to the first salary level. The National Insurance rate will increase by 0.6% (there is no change in health tax) for both employer and employee.
This is a difficult financial measure for many families. For example, an employee who earns about NIS 30,000 a month, will pay another 1.6% in National Insurance contributions for the first NIS 7,500 shekels (employer and employee will bear an additional 0.8% each), while an employee who earns up to NIS 7,500 per month will pay an additional 1.6% National Insurance contributions on their entire salary.
The populations that will be least affected by the plan to increase the National Insurance contributions are students including haredi yeshiva students. These populations pay the minimum National Insurance contribution monthly rate of NIS 145 shekels, of which NIS 29 shekels is for social security payments. This means that these populations will receive a minimal increase of NIS 14.5 per month in National Insurance contributions.
Published by Globes, Israel business news - en.globes.co.il - on November 3, 2024.
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