Bank Of Israel Supports Tax Credit Extension

by Lorys Charalambous, Tax-News.com, Cyprus

29 June 2010

The Bank of Israel has published a report on the implementation of the Earned Income Tax Credit Law (EITC Law) summarizing the experience gained in the first year of the program, which was launched in September 2008 in certain areas (Ashkelon, Hadera, Jerusalem and Nazareth).

The average rate of take-up of entitlement among those eligible to participate was found to be 45%, and it increased with the size of the benefit. Variation was found between the rates of take-up in different areas, apparently related to the activity of non-profit organizations acting to spread awareness of the program. According to the Bank of Israel, the rates of take-up were high by international standards, taking into account the fact that the program is still in its early stages and is operating on a more modest scale in Israel than in other countries.

The findings showed that the EITC program helped to rescue about 4.5% of the recipients of the credit from poverty and boosted the income of the bottom quintile of the recipients by some 12%.

About 80% of the support transferred to families with children went to the lowest four deciles of the wage distribution.

It was found that poverty was higher among families with children (less than 19 years old) than among those aged more than 55 years without children.

In a statement, the Bank of Israel explained:

"Based on the experience and findings to date, it can be stated that EITC is a focused and effective tool that raises the level of income of the working low-paid population."

"It is more effective in reducing the incidence and depth of poverty among families with children than among those aged 55+. The credit also helps to improve the income of working families with income slightly above the poverty line."

"Although it is too soon to assess the effect of the program on rates of employment, based on international experience it may confidently be expected that such effect will not be significant. Nonetheless, unlike other policy tools, EITC is not expected to have a negative impact on rates of employment."

"In light of the problem of poverty among families with one wage earner and widening income gaps, and based on experience gained hitherto, the findings support the extension of the EITC program country wide."

The report was compiled and the research carried out by a joint research team, consisting of representatives of the Bank of Israel, the Myers–JDC–Brookdale Institute, the National Insurance Institute, and the Tax Authority.

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