Despite the protests of the heads of Israel’s wealthier municipalities, the Knesset finance committee Monday night approved the property tax fund clause that will be included in the coalition’s regulations law, which accompanies the state budget.
And despite the passage of the property tax fund by the finance committee, several municipalities, among them the largest and richest in Israel, announced that their strike, suspending city services to their residents, would continue through Thursday. There will be no public reception in these municipalities and garbage will not be removed. In addition, municipal sports centers, city libraries, cultural institutions, and community centers will remain closed.
If you understand this logic of punishing your residents because you’re angry at the government, do drop us a line.
Essentially, the property tax fund will give an incentive to all the municipalities to issue more construction permits for new housing units by transferring money from cities with a hefty commercial base to cities without one. The goal is to get municipalities to build more homes to reduce the housing crisis.
Residential properties cost more to service: they entail a long list of amenities, including schools, healthcare, and law enforcement, which commercial properties don’t require. The richer cities are reluctant to issue residential permits, preferring to increase their construction for business. The fund will take about 28% from the annual increase (not from the full tax) in the richer cities’ commercial property taxes and transfer it to municipalities that lack the ability to attract major businesses but want to build residential units.
According to the Finance Ministry’s data, Tel Aviv, one of the prominent opponents of the law, will be the biggest contributor to the property tax fund, because it enjoys the highest property tax revenues from non-residential areas: approximately NIS 2.35 billion in 2019, and approximately NIS 1.858 billion in 2020 (the pandemic year).
However, according to Globes, Tel Aviv will save a hefty penny if it accepts the new outline: according to the Treasury’s data, the original provision levels would have caused Tel Aviv a loss of revenue of approximately NIS 400 million, while the new outline is “only” about NIS 191 million. In the first year of the fund’s operation, 2024, the amount Tel Aviv pays out will be NIS 115,000, but as the years go by, the amount will increase (since the provision is cumulative), so that in 2028 alone, Tel Aviv is expected to give up approximately NIS 76 million. Naturally, although the city enjoys particularly high revenues from non-residential property taxes, nevertheless any amount deducted from its budget is an amount that could have been used by the municipality to budget other activities for its residents.
Finance Minister Bezalel Smotrich said in a statement: “I would like to thank the chairman of the committee MK Rabbi Moshe Gafni for leading the legislative process with great wisdom and determination, the chairman of the coalition MK Ofir Katz who got under the stretcher and led the agreements with wisdom and courage, and my colleagues in the coalition who stood up to tremendous pressure.
“This law is great news for the citizens of Israel. We take care of the cost of housing at the root level, not with band-aids. This fund will stimulate the construction of apartments, increase the supply and lower housing prices. We will continue to fight the high cost of housing and the cost of living and strengthen Israel’s economy and take care of all Israeli citizens.”
The big winners in the period of 2024-2028 will be Beit Shemesh (NIS 87 million), Ashkelon (84), Bat Yam (78), Beer Yaakov (46), and Jerusalem (9.5).
The big losers over the same time period: Tel Aviv (Nis 191.5 million), Haifa (115.8), Petah Tikvah (52.5), and Eilat (25).
The data presented here are only estimates. They may change, even in a significant way, if the summarized outline changes, for example, but even regardless of that – they will be affected by the construction activity in each city in Israel: the more construction permits a city approves, the more income it will receive from the fund; The more employment and commercial spaces are added to it, the more it is expected to allocate to the fund.