Some of Israel’s wealthiest municipalities, including Tel Aviv, Haifa, and Rishon Lezion, have announced that they are shutting down services starting Monday morning until further notice. The reason: Finance Minister Bezalel Smotrich’s property tax ordinance requires them to aid the country’s poorer communities using their burgeoning property tax income.
It turns out the rich do not get richer by being generous.
According to the new law, each municipality is required to set aside a certain fixed rate from the annual increase in their non-residential property tax revenues (mainly business property tax), to be transferred to the national property tax fund. The amount to be transferred is determined by the municipality’s increased income from property taxes for businesses so that municipalities bringing in more money will be required to set aside larger amounts. The accumulated fund will be transferred to all the municipalities based on the number of residential construction permits they issued: each housing unit permit granted earns the municipality a certain fixed sum.
The property tax law was formulated as an additional tool to deal with the country’s housing crisis. The way property taxes are calculated in Israel has created a situation whereby every new residential housing unit increases the municipalities’ budgetary deficit since it entails many additional services––education, medicine, welfare, and policing––compared with businesses whose burden on the budget is limited to infrastructure services. As a result, municipalities––rich and poor alike––discourage new housing in favor of new businesses.
The new law bypasses these traditional considerations which have contributed to the growing housing crisis, by offering the municipalities a clear and tangible incentive to increase residential housing. And those municipalities that would rather keep their housing stagnant must pay their neighboring municipalities that are doing something to create homes for Israelis.
The Federation of Local Authorities in Israel announced on Sunday a “general strike until the property tax fund is removed.” The announcement followed a stormy confrontation with coalition MKs in the Knesset’s Finance Committee, and the federation is claiming that “all the municipalities are with us.” The coalition, for its part, called it “the strike of the rich municipalities.” But it appears that participation in the strike cuts across political boundaries.
Jerusalem, Ashkelon, the Ashkelon Coast, Sdot Negev, Eshkol, and Shaar HaNegev regional councils have announced that they would not cooperate with the strike, but many cities announced they would: Tel Aviv, Haifa, Beer Sheva, Holon, Ashdod, Rishon Lezion, Modi’in, Ashdod, Petah Tikva, Ramat Gan, Rosh Ha’Ein, Givatayim, Kfar Saba, Herzliya, Ra’anana, Hod Hasharon, Ramat Hasharon, Nesher, Ramla, Beit Shean, Tveria, Kiryat Ono, Or Yehuda, Shoham, Kadima Zoran, Ganei Tikva, Emek Jezreel, Yokneam, Mate Asher, the Gilboa Regional Council, and the Regional Council Sothern Sharon.
Most of the above cities are among the more affluent in Israel, let’s call them the Haves.
Minister Smotrich issued a statement, saying: “Today, in the current situation, there is an incentive for the head of a municipality to construct businesses and not residences, which creates a low supply alongside a growing demand. The result: housing prices are constantly on the rise and we all pay the price!”
“The housing price reduction fund wants one simple thing – to incentivize mayors to build residential housing units. With more supply, housing prices will drop. All the other things you are being told are complete lies!” he added.
Tel Aviv Mayor Ron Huldai was among Smotrich’s detractors, telling his residents: “This law allows the government of Israel to nationalize your property tax money, residents of the city, and use it for various coalition and sectoral needs. Instead of strengthening the local municipalities and allowing us to provide optimal services to our residents, the government chooses to concentrate all the power, at our expense, and, unfortunately, mainly at the expense of residency and residents.”
Huldai added: “I know you pay a very heavy price when it comes to strikes, I regret it, but it is about our ability to establish community centers, build dormitories, provide a proper education for your child, and many other services. The struggle belongs to all of us, and it is just and important like no other.”
You’ll notice Huldai said “your child.” In the poorer municipalities, it would have been “your children.”
“It’s time to bring down the cost of housing!” Minister Smotrich responded. “The fund to lower the cost of housing remains in the local government, not a single penny of it goes into the treasury, it’s just a fake! The law will pass and this achievement will be credited to all the citizens of Israel!
Smotrich also explained: “They claim that the strong municipalities will fund the weak ones – this is not true. Anyone who builds residential housing units will receive an annual grant from the fund, while anyone who builds offices will set aside a small amount for the property tax fund – compared to the huge profit he makes and will continue to make from the business property tax.”
And so, on Monday, in an effort to protect the rights of their citizens, Israel’s wealthier municipalities will shut down their services. Where is Groucho Marx when you need one?