Passing the Municipal Tax Fund will increase animosity in Israel - editorial

With Operation Shield and Arrow completed, the latest salvo against the country’s stability is coming from the coalition.

The proposed legislation to create a Municipal Tax (Arnona) Fund – a focus of Finance Minister Bezalel Smotrich’s Arrangements Law legislation that accompanies the budget bill – is a flawed and unjust attempt to take from the “rich” and give to the “poor.”

Wealthy cities, poor cities

The concept has merit in principle. The new fund would appropriate part of the earnings of wealthier cities from their tax on commercial real estate, and reallocate those funds to poorer cities for every housing unit they build. By doing this, the government hopes to incentivize both wealthier and poorer cities to invest in housing instead of commercial real estate, and thus raise the supply of housing, and, eventually, lower housing prices.

The other benefit would be to provide funds to the poorer local authorities – mainly in the haredi (ultra-Orthodox) and Arab sectors – that can’t provide adequate municipal services because of their budget deficits due to a shortage of income from municipal taxes.

To achieve this, the current version of the legislation states that the local authorities collecting the most business municipal taxes will have to hand over up to 28% of any post-2022 increase in revenues. Poorer municipalities will get grants of NIS 1,850 for each housing permit they issue.

The more building permits issued, the more funds the poorer municipalities would be allocated, which in reality means that the recipients of the money wouldn’t necessarily be those local authorities in need, but middle-class municipalities with construction booms like Ashkelon.

The city that stands to lose the most arnona funds is Tel Aviv, while haredi towns and settlements will benefit greatly. Critics of the plan say that it dovetails with the judicial reform push by the government, and will further divide the country by punishing voters who oppose the judicial legislation.

Among the other criticisms is that the plan incentivizes poorer cities to build housing as opposed to commercial real estate, lowering incentives to create new business centers and industrial parks in peripheral or poor areas. In addition, critics say the fund would end up discriminating against Arab cities and towns, since these suffer from insufficient urban planning and insufficient construction – and therefore would receive less of the fund. At the same time, thriving local authorities in the West Bank would be exempt from allocating portions of their earnings to the fund, due to various legal issues.

Municipalities and local authorities throughout the country showed their displeasure over the proposal by launching a strike Monday and shutting down services.

The Federation of Local Authorities in Israel – which represents about 200 municipalities – issued a statement opposing the fund, saying: “This is an attempt to impair education, welfare, culture and our ability to provide municipal services to our residents, and it will bring about the collapse of the local authorities. It is not our job to worry about budgetary resources to solve national crises.”

At the Knesset Finance Committee on Sunday, Modi’in Mayor Haim Bibas – a Likud member who is also the head of the Federation – appealed to his fellow party members.

“Your job is to stop and say that such a destructive law doesn’t belong in the Arrangements Bill. Our stance is absolutely clear: We oppose this law, and this is your opportunity… because in the end you live in these cities,” he said.

The Municipal Tax Fund plan, together with cabinet approval on Sunday of NIS 13.7 billion in coalition funds in the 2023-2024 national budget – which significantly increases funding for private and semi-private haredi elementary schools and yeshivot – have sharpened the sense that the government is not looking out for the best interests of all the country’s citizens, but only those of a small segment.

The measure of a just society is that it takes care of its underprivileged and neediest members. However, against the background of the bitter fight of recent months surrounding the judicial overhaul, the passage of the Municipal Tax Fund will only exacerbate the animosity that has been growing between the different parts of Israeli society, and increase the sense that the government is taking care of its voters and leaving the rest of the country to foot the bill.