Analysis: ‘Arnona Fund’ Simplified, And Why Is It A Point Of Contention?

JERUSALEM (VINnews) — In the last few days, the Israeli media has been debating the pros and cons of a new law being adapted into the budget known as “The Arnona fund”, or “municipal taxes fund”. The issue has led to contentious claims that the Israeli government is trying to “steal” from municipalities for its own purposes, although this is far from the truth.

In order to understand the background to the proposed law, it is important to distinguish between two forms of municipal taxes: property taxes on private homes and rates on commercial real estate. In terms of private homes, most municipalities do not gain and even lose money for the services they provide to private properties. However these losses are usually offset by the higher municipal taxes they can levy from offices and commercial structures around the city.

The problem is that there are some cities which enjoy large business and industrial centers which can provide them with more than the necessary resources they require, whereas other cities which have very few available spaces for commercial enterprises cannot succeed in maintaining fiscal viability on the basis of private property taxes.

For this reason, Finance Minister Betzalel Smotrich in conjunction with senior treasury officials negotiated with the Federation of Local Authorities in Israel (FLAI) to create a fund which would enable the government to siphon off some of the profits from commerce-rich cities to help their poorer counterparts. Smotrich and the FLAI actually reached an agreement what percentage of these profits could be used last week. In order to give an incentive to cities to build badly-needed housing rather than commercial real estate, the fund will allocate money to cities for each additional housing unit constructed.

Despite this, the opposition seized on the issue, claiming that the government was “stealing from the wealthy cities”. Several mayors from these cities decided to initiate a strike in their municipalities, including locally-sponsored schools and educational facilities. The mayors threatened not to transfer any funds to the government in what they described as “robbery.”

In the wake of the public criticism, The FLAI reneged on its agreement, claiming that it had not accepted that such a percentage of profits could be allocated, but the government went ahead with the legislation, although it watered down the amount which would be transferred from each city to the fund and modified the criteria for such allocations. The motion was passed Monday evening in the Knesset law committee and will be submitted together with the budget law to the Knesset in the coming days.