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Home » Pensions, Insurance & Everyday Investments » 5 flaws in the Israeli financial system, what the government SHOULD do about it (but doesn’t) and what you CAN do about it

5 flaws in the Israeli financial system, what the government SHOULD do about it (but doesn’t) and what you CAN do about it

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legal warning: The information here should not be understood legally as financial advice. If you believe anything on this site is in error, please contact me. I am always open to corrections, new ideas, and new opinions...

#5 – tax laws against stay-at-home moms

In Israel, tax deductions for children are only given to the mother, with rare exceptions.  As a result, families where the mother stays at home and the father alone works are unable to receive any sort of tax deduction.  This system makes it harder for larger families, more often poorer families, to make a living, costing the government more in subsidies, which economically speaking, is a tremendous waste of money due to bureaucracy.

What the government could do:  The government could do what almost every other country does – allow for couples to file their taxes jointly and share their tax points, regardless of which parent is working

What you should do now:  Unfortunately, the system is designed for mothers to work for about about ₪ 6,000 – ₪ 7,000 a month.  Short of political protest, the only thing I can think of is for stay at home mother to take part time work, or else remain as they are and note the sacrifice being made in order to stay at home.  At the very least, when weighing working vs. staying at home calculate your take home pay, which will most likely be tax-free.

 

#4 – unclear pensions

As I mentioned in my series on pensions, Israel switched to a defined contribution system, which means that the private consumer is ultimately responsible for handling his pension. At the same time, pensianet is unclear, lacks information on specific investment tracks within a pension, and exerts absolutely no effort to try to explain to people how to choose a pension.  As a result, private people have no idea what they are investing, and when the market falls, bear the responsibility without even being given the tools to have some sense of control.

What the government could do:  Clean up pensianet.  Include information on all of the pension tracks and implement a system to help people choose the pension that is right for them.

What you should do now:  Learn as much as you can to control your money. In my series, I propose a system for choosing a pension.  It is slightly flawed because I lack specific information on every fund, but in the meantime it is the best option I can think of to make sure my money is being handled responsibly.  Take comfort, as I do, that while you cannot be exact, you can be imprecisely right and not precisely wrong.

 

#3 –bureaucratic tax alignments

If you have received an income from more than one place, you know the hell of which I speak.  Going to Mas Hachnasa is a nightmare and Bituach Leumi is no picnic either.  Both offices are immensely understaffed and often cost an entire business day (sometimes two) in order to get money back.  The online option is rarely better.  Recently, my wife tried to do a tax alignment online and Mas Hachnasa just decided on their own to add a number from which they add taxes (the option wasn’t even on the form my wife filled out!).  I spoke to the accountant where she works and as soon as I mentioned she did the alignment online he stopped and said that this was not the first time this happened and that if she wants to get it done right, she has to go there in person (and waste half day’s work.)

What the government should do:  Mas Hachnasa has to clean up their website, as does Bituach Leumi.  The ultimate flaw, of course, is in their information system, which really should be doing automatic calculations on its own.  Every single person is classified by an ID number and a computer should be able to calculate any money owed to the citizen  and credit it to his account, without anyone having to file a single sheet of paper.  Some claim that the government offices cannot do this because they count on people being unable to put up with them, allowing said offices to keep the dishonest money.  My feeling is that the money saved on office space, wasted government officials and the economic benefit to the consumer would more than make up for it.

What you should do now:  Unfortunately, we’re stuck with them.  So do it once and do it right.  Make sure you have a folder with all possible financial documents you could possibly own, find out when the lines are shortest at the government offices (usually in the afternoon) and go there with a book in hand and wait to get it over with.  I once saw a family at Bituach Leumi actually bring a pizza and eat a meal together while waiting on line.  It looked crazy at the time, but now that I think about it, it’s not such a bad idea.

 

#2 – banks that nickel and dime you

Banks use a method of bank fees designed to take as much as they can from those unwilling to make a big deal over it.  Additionally, they “accidentally” take extra bank fees on a regular basis, hoping that you either won’t catch them, or that it won’t be worth your while to ask for it back.

What the government should do:  Break the cartel or control it: either allow foreign banks to enter the private banking market in Israel (banks like HSBC, Citibank, etc) or else regulate the bank fees.

What you should do now:  First, negotiate your bank fees and get everything in writing.  Second, set aside a “money day” once a month where you go through your bank and credit card statements and find the fees that they took illegally.  Call the bank the next day with your paperwork and kindly request your money back.

 

#1 – workers that have no rights

It is said that God does not bring an affliction without first bringing the cure.  In a similar vein, the ministries of finance and labor do not make a law to benefit a worker without creating a tremendous loophole.  There may be a law of minimum wage and benefits, including vacation and a pension, but by writing off a worker as an expense instead of an employee, businesses can hire workers without any such benefits. According to the Jerusalem Post, this trend is spreading rapidly in Israel and has created an unprecedented amount of “working poor” throughout the country. According to the article, cleaners, security guards and clerical workers employed by manpower companies are the most common groups with no rights.  From experience I can tell you that people who work in ganim, storefront workers, and many other jobs in manpower agencies do not offer any benefits as well.  Businesses claim that their workers get a slightly higher salary, and in doing so, cover the cost of these benefits.  In truth, they pay minimum wage (or close to it), and do not cover the costs of these missing benefits (approximately 20% – 25% of a salary).  And if you think it’s just a matter between the businesses and their workers then I have some news for you.  The Israeli government is trying to implement a policy of mandatory pensions which will allow the government to spend less on social security in the years to come.  We are sacrificing our money in the short run to save on government inefficiency and waste in the long run.  But what do you think is going to happen when a generation of exploited workers retires with no pension?   Who is going to foot the bill?  It isn’t going to be the businesses who exploit the workers; it is going to be the average citizens who will pay to cover the costs of these retirees, which ultimately is covering the money saved by these dishonest businesses.

What the Israeli government should do:  All money paid for any service should have a pension amount taken out automatically, no matter what the sum.  Even bonuses should have a portion taken out and put into a pension fund (I am not saying the employer should have to match it, but there should be some level of automatic savings.)  If this is too much, businesses should be required by law to reveal what the hourly wage is without a pension (-10%) and without vacation days (about 10 – 15%).  This would allow workers to see the truth behind the salaries and make intelligent decisions when choosing a job.  Finally, a realistic number should be set for minimum wage without benefits.

What you should do now:  If you are a worker without benefits, begin setting aside money for your pension now.  The government is planning on cutting the cord, so you may as well be ready.  Also, try to save up enough money to quit your job and find one that pays honest wages and benefits.  For those job hunting, when comparing a job without benefits, realize that you are really getting the equivalent of 25% less with benefits.  Also, take extra precaution when signing on with a manpower agency.


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