Histadrut and Treasury reach agreement on public sector pay

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Israel's Ministry of Finance and Histadrut trade union movement have reached a final agreement on a package of economic measures that will be part of the 2025 state budget.

Israel's Ministry of Finance and Histadrut trade union movement have reached a final agreement on a package of economic measures that will be part of the 2025 state budget. The most important part of the agreement concerns public sector pay for hundreds of thousands of employees. Instead of postponing a planned pay hike, a mechanism has been agreed for a temporary wage cut, in exchange for the pay hike coming into effect as planned.

According to the agreement, the wage increases set in last year's framework agreement will be 2% in December 2024, 1.5% in April 2025, and 1.5% in April 2026. At the same time, a temporary cut of 2.29% of wages will be implemented between December 2024 and December 2025, which will fall to 1.2% in 2026 and be canceled thereafter.

According to Ministry of Finance's estimates, the move is expected to result in savings of NIS 5 billion in 2025 and NIS 2.5 billion in 2026.

In December 2024, there will be a slight fall in net wages of 0.29%, due to the gap between the December increase and the reduction that will be implemented at the same time. In April 2025, with the 1.5% increase, wages will rise to a higher level of approximately 1.2% of the starting wage, despite the continued 2.29% reduction.

The positive trend will strengthen in 2026, when the reduction will decrease to 1.2%, with another 1.5% increase added to the wage in April. At the end of 2026, with the complete elimination of the reduction, workers will benefit from all the cumulative increases - 2% from December 2024, 1.5% from April 2025 and 1.5% from April 2026 - for a total increase of 5% relative to the starting wage.

The bottom line is that workers will see a gradual increase in their wages over the period, except for the slight decrease in the first few months, and will ultimately receive guaranteed and immediate wage increases of 5% cumulatively. This is in contrast to the alternative of freezing bonuses, which would postpone wage increases for several years.

Also in the agreements: Tax relief for pensions

It was also agreed that the temporary cut will not affect employees' pension rights - it will not reduce the insured salary for cumulative and budgetary pensions, and will not affect final account payments. Alongside the agreements on the issue of wages, it was also agreed to continue the plan initiated in 2024, in which each employee contributes one day of recreation pay to the state coffers (worth NIS 418-471 shekels per person), instead of two days, as discussed in the negotiations.

In addition, tax relief has been agreed for pension taxation and stopping the increase in the tax benefit for drawing a pension will apply only to 2025 and not permanently, and the proposals to lower the ceiling of exempt pension deposits and increase the provisions of budgetary pension holders were canceled. As expected, the cut in the tax benefit on advanced training funds and freezing the minimum wage were also removed from the budget, at the request of the Histadrut.

The Histadrut conditioned its agreement to the wage reduction on the completion of legislative procedures to freeze the wages of government and local authority officials in 2025, as well as on advancing amendments to the Pensions Law, in accordance with previous agreements. Most of the agreements have already been expressed in a government decision and legal memoranda distributed by the Ministry of Finance this week.

Published by Globes, Israel business news - en.globes.co.il - on November 19, 2024.

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