To view this press release as a Word document
- In the first year of the countrywide applicability of the law, the number of grant recipients was about 181,000, and there were about 370,000 eligible people.
- The law is well-focused on weaker population groups: About 75 percent of total payments were transferred to salaried employees from the two lowest income quintiles among salaried employees.
- About half of those eligible took up their eligibility and received the grant. The average full year amount per recipient was about NIS 2,900.
The work grant (Earned Income Tax Credit, or EITC) has been paid each year since 2008. It is intended to improve the economic welfare of families of workers with relatively low incomes. During the first two years of the law’s implementation (2008 and 2009), the grant was paid only in selected regions (“treatment areas”), and in 2010 and 2011, the eligibility was expanded to include mothers of children up to age 2 countrywide. In 2011, the law was implemented for the first time throughout the country, and the number of eligible people was 370,000, about 10 percent of all salaried employees. Most of those eligible (80 percent) are parents, and about one-third of them have three or more children. About one-quarter of the eligible people are immigrants, about one-fifth are Arabs, and about 7 percent are ultra-Orthodox Jews. The grant is paid once per quarter, in the year following the eligibility year, which is the year for which the grant is being paid.
In 2012, when the grant was paid based on income in 2011, half of those eligible submitted a request for the grant and received it. The take-up rate was higher in “veteran” implementation areas—the treatment areas—and about 52 percent of eligible persons in those areas received the grant. The take-up rate in “new” areas was 49 percent. Based on the findings, among the factors that increase the probability of taking up the eligibility are receiving the grant in previous years, residence in treatment areas, size of the grant, work in the public sector, and spouse’s receiving the grant. In order to increase the take-up rates, the Israel Tax Authority sends letters to eligible people who have not applied to receive the grant and notifies them of their eligibility. This year the format of the letters was improved. In addition, from November 2013, eligibility can be checked directly, on the Israel Tax Authority’s Internet site. Initial signs indicate that the take-up rate for income from 2012 increased markedly.
The average full-year amount of the grant for work done in 2011 was NIS 2,900. Employees with 3 or more children are eligible for an increased grant, so populations which are characterized by large numbers of children, such as the ultra-Orthodox and Arab sectors, received a larger grant relative to other eligible people (Figure 1).
Figure 1
Grant amounts paid in 2012, by population group (NIS)
Most of the amounts were paid to workers from weaker population groups: immigrants (24 percent of total payments), Arabs (16 percent), ultra-Orthodox Jews (9 percent), and single mothers (11 percent). Most of the grant recipients (about 71 percent) are in the two lowest income quintiles in the distribution of salaried employees by equivalized wage income, and they received 75 percent of total payments paid out in the framework of the law. The grant constituted a more significant addition for salaried employees with low income, who are in the lowest income quintiles (equivalized family income of the grant recipient). It increased equivalized income by about 12 percent in the families of eligible persons in the lowest quintile, and by about 6 percent in the second-to-lowest quintile. The grant is also focused on continuing workers—a considerable majority of the eligible people worked in every year between 2007 and 2011.
The work grant achieves its goals because it is well-focused on the population of workers who have children and relatively low income. Thus, it is an efficient tool to support that population, at a limited budget, and without negatively impacting the incentive to work. The current amounts of the grant are significantly lower than those of similar programs in the US and UK. Increasing the amount of the grant can reduce, at relatively low cost, the incidence of poverty among families of workers with children, since a significant majority of the support will reach the target population. For example, increasing the average amount of the grant by about 45 percent per family, along with some expansion of the range of incomes eligible for the grant, will extract about 4,700 families with workers from poverty, will reduce the incidence of poverty among working families by about 0.28 percentage points, and will reduce the poverty gap among them by 0.5 percentage points. Thus it can offset about 70 percent of the increase in poverty which occurred among working families following the reduction in child allowances in the most recent budget, at a cost of about NIS 0.66 billion, about one-fifth of the budget savings achieved by the reduction (Table 1).
Table 1: Increasing the grant and its effect on poverty among households with wage earners
Population groups |
Effect of the proposal on the incidence of poverty
(percentage points) |
Working families |
Total households with wage earners |
-0.28 |
-4,700 |
One wage-earner |
-0.30 |
-2,200 |
Two or more wage-earners |
-0.26 |
-2,500 |