Israel's Finance Ministry Proposes Higher National Insurance Fees for Non-Working Populations to Cover Deficit

Israel's Finance Ministry has revealed a significant forecast in its three-year budget plan, warning that the National Insurance Institute (NII) will face a financial shortfall by 2029 due to ongoing deficits. The deficit stems from expanded eligibility for long-term care and disabled children's benefits, alongside reduced National Insurance contributions and discounts granted to various groups. The ministry highlights that while increasing contributions from employed workers could reduce the deficit, it would burden the workforce and potentially harm employment rates. Instead, the ministry proposes raising National Insurance fees for non-working populations, including unemployed individuals, yeshiva students (Avreichim), and students, who currently pay significantly lower rates than employed workers.

Currently, an average salaried employee earning about 13,500 shekels monthly pays approximately 5,880 shekels annually in National Insurance contributions. In contrast, unemployed individuals pay about 1,716 shekels annually, and Avreichim and students pay only 576 shekels per year. The Finance Ministry's plan suggests reducing eligibility for some benefits and adjusting collection methods to increase contributions from those not in the workforce, aiming for a fairer distribution of payments.

Critics, including Shlomit Ravitzky-Tor-Paz of the Israeli Democracy Institute, note that Avreichim receive a permanent discount until age 67 despite low employment rates (53% among Haredi men) and that the accumulated discount can reach tens of thousands of shekels compared to unemployed individuals. Since January 2024, Avreichim subject to military service obligations lost their discount, now paying rates similar to unemployed persons. The Haredi population, estimated at around 175,000 Avreichim, is growing rapidly, impacting future National Insurance finances.

Experts emphasize that merely adjusting contribution rates will not suffice to resolve the NII's financial challenges. Past public committees recommended comprehensive reforms, including separating old-age and long-term care benefits, raising retirement ages, indexing retirement to life expectancy, and integrating tax and National Insurance collection systems. The NII projects its deficit will reach 18 billion shekels by 2030 and 48 billion by 2050, driven by demographic changes such as a doubling of the Haredi population share to 30% by 2065 and low workforce participation among Haredi men and Arab women.

The Finance Ministry points out that approximately 350,000 working-age Israelis are minimally engaged in the labor market, paying minimal National Insurance fees, alongside about 150,000 non-working Avreichim and students paying reduced rates. The ministry's proposal aims to address these imbalances to ensure the sustainability of Israel's social security system.