The Knesset Finance Committee, chaired by MK Moshe Gafni (United Torah Judaism), approved Sunday -- after a long day of deliberations -- a new pension reform: the state will lower the threshold for tax-free contributions.
The current threshold is 4 times the average salary; the draft through Sunday called for a cut down to 3 times the average salary; and the approved version whittled it down to 2.5 times the average salary.
Up until the reform, employers' pension contribution was taxed only above a pre-tax salary of NIS 38,000 per month. The new pension measure means employees will begin paying tax on pension contributions for a pre-tax salary greater than NIS 24,000.
The deal
The reform was passed after a deal was struck between the government and committee chair Gafni, under which the tax benefits for pension contributions would be cut in return for the budget department at the Ministry of Finance providing grants to doctors in Israel's periphery and discounting mortgages for eligible individuals.
But the passage of the measure was not smooth.
At one point on Sunday, the deal seemed to fell through, only to be reinstated after Likud MK Nava Boker -- who was objecting to the move against the coalition's wishes -- was replaced.
The Ministry of Finance's representative in the Knesset said on Sunday that the state would save an average of NIS 260 million per year by lowering the amount to 3 times the average salary and an additional NIS 220 million if it is lowered to 2.5.
On the other end of the deal, the costs of the doctor grants have been estimated at NIS 75 million per year while the 0.5% mortgage subsidy for eligible individuals will cost some NIS 170 million.
The Finance Committee said in a statement, "Though he was not a fan of the move, it was approved by committee chair Gafni during talks with the ministry of finance, while attaining other important social targets."
Gafni said, "This is the lesser evil after we succeeded in getting a line of significant social issues -- which the ministry of finance opposed -- like lowering the interest rate on mortgages to those eligible according to the Ministry of Construction and Housing, continuing to incentivize doctors to move to the periphery, and more.
"Finance personnel wish to lower this for those who earn twice the average salary, but they do not have the courage and expect the Finance Committee to do it for them. We won't allow it."
Sources at the Ministry of Finance said Monday they did not ask to lower the ceiling to double the average salary and they had no intention of further lowering the threshold.
They said the number of Israelis earning more than NIS 30,000 per month (pre-tax) is some 150,000 -- less than 5% of salaried employees will be affected by the change.
Published by Globes [online], Israel business news - www.globes-online.com - on November 9, 2015
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