War Round Exposes Gaps in Compensation Scheme
The assistance framework for businesses prepared for Operation Rising Lion is valid until 2030, and it will be activated if Finance Minister Bezalel Smotrich signs a new order on the matter, without the need for new legislation. At this stage of another round of fighting with Iran, it is still too early to know whether such an order will indeed be signed, and business owners still cannot know, if they receive compensation for lost revenue, to which period their business turnover will be compared, since Operation With the Strong Lion also broke out in June last year, likewise against Iran. And will employees be entitled to unpaid leave?
The government’s aid frameworks are divided in practice into two, one is the business assistance framework and the other is the employee assistance framework, which includes unpaid leave days. As part of the discussions on the frameworks, which lasted many long weeks, it was agreed for the first time on an automatic, one-click framework that does not require a dedicated legislative process, as was the case previously and since the coronavirus period, through the October 7 war and the fighting rounds against Iran in June last year and in March. Thus, the business assistance framework remains in force until 2030, but to activate it, Finance Minister Bezalel Smotrich must sign an order that also needs the approval of the Finance Committee. The order will include changes compared with the previous framework, given the difference between the operations.
How severe is the economic damage? At the start of Operation Rising Lion, and for five days, the economy was almost completely shut down, whereas now the education system was shut down for one day and restrictions were imposed. In other words, the damage to business and economic activity is expected to be lower. Accordingly, the economic cost of shutting down the economy during the first five days of Operation Rising Lion was estimated by the Finance Ministry at about 9.5 billion shekels, while a functioning economy with schools closed imposes weekly economic costs of 4.5 billion shekels. Under this, the shutdown of sectors in the economy caused damage of about 2.4 billion shekels, the closure of the education system caused damage of 1.2 billion shekels, and reserve duty activity caused damage of about 600 million shekels.
Who is eligible for compensation? Under the business framework, businesses with annual turnover of 12,000 shekels to 400 million shekels are eligible for compensation if, during the operation, they experience a decline of 25% or more in turnover compared with the base period. In Operation Rising Lion, the comparison period was March-April in the corresponding period last year. This time, if the framework is activated, the comparison period will have to be changed, because there was also fighting with Iran in June last year. The comparison year for the hotel industry is expected to be 2023.
Main points of the business aid framework Who is eligible? ■ Businesses with annual turnover between 12,000 shekels and 400 million shekels
What are the threshold conditions? ■ A 25% decline in turnover compared with the corresponding period last year for monthly reporters ■ A 12% decline in turnover compared with the corresponding period last year for bi-monthly reporters
How is the grant calculated? ■ Grant for participation in fixed expenses ■ Grant for participation in wage expenses
What does the compensation include? The compensation includes the extent of the decline in the affected business’s turnover, the amount of its fixed expenses, and the wages of its employees that it paid during the period. The law also grants compensation for indirect damage to those harmed by direct damage, as well as compensation for loss of rent.
Are there other conditions for small businesses? Yes. For small businesses, the compensation is in fixed amounts according to brackets and according to income level and the rate of decline in turnover, and these are linked to the consumer price index. Specific frameworks exist for private kindergartens, which will be eligible for compensation also for refunds to parents, and for spouses of reserve duty soldiers.
What about employees and their eligibility for unpaid leave? This framework can also be activated by signing an order and approving it in the Knesset Labor and Welfare Committee. However, in light of the characteristics of Operation Rising Lion, a five-day qualifying period for unpaid leave was decided on, compared with the period set by law, which stands at 30 days with the option to shorten it to only 14 days. An employee on unpaid leave receives up to 70% of salary.
Where are the gaps in the framework that still have not been addressed? Yaron Gindi, president of the Israel Tax Consultants Association, argues that although there is a grants law that is valid for five years and also applies to the current round, the wording is anti-economic and does not create an incentive for businesses to keep the economy open if the situation worsens. According to him, this is because in Operation Rising Lion, business owners received compensation for employees’ wages if their employees were on unpaid leave for up to ten days. In other words, if an employee was on 11 days of unpaid leave, and during the remaining days the employer paid wages, the employee did not receive compensation.
Gindi explains that now it is a different story, because the law valid for the next five years states that if you send an employee on unpaid leave even for one day, you will not receive compensation for the remaining days, since you paid him salary, even when you have a substantial drop in turnover and the business is hurt. “So what is a business owner supposed to do? Respond to the call to keep the economy open?”
Gindi adds that if the operation now had continued, “the businesses would have had to make a decision, either put employees on unpaid leave for the entire operation and then not receive compensation for the wage component, but in practice they did not bear the wage costs and deepened the losses, or not put employees on unpaid leave at all, absorb the losses as a result and wait for compensation, after absorbing all the previous operations. The problem is that not everyone can absorb these losses, and it is also not correct from an economic and national perspective, because we need every business as a growth engine for the economy at the end of the crisis.”
According to him, the compensation received for wage expenses is also not full, but 75% of the wage paid to the employee, multiplied by the business’s rate of decline in turnover. “If turnover fell by 50%, you will receive only 37.5% compensation from the total salaries you paid. A business that fell 50% in turnover is clearly in very significant loss and is finished. On the other hand, the employee on unpaid leave also loses, because 70% is the maximum, but an employee earning 15,000 shekels receives 57%.”
In conclusion, Gindi adds, “Since yesterday I have been thinking about what to tell tax consultants and clients. There are businesses that still have not recovered from ‘Rising Lion.’ The feeling is that we and the economy have been put into a very dangerous trap for our economy, especially at this time.”
"The shortage of hotel rooms is making vacation apartments very sought after"
