Israeli Government Tax Payments to Cities, Towns Help Widen Income Gaps

Many attempts to reapportion these tax revenues more fairly have been stymied by the local governments that would lose out.

Gil Eliahu

The government pays local authorities about 900 million shekels ($228.7) annually in municipal tax for its properties. However, data analysis by Haaretz, published here for the first time, reveals a gap of several hundred percent between different communities, sometimes just a few hundred meters apart, based on historic discount arrangements that are in many cases obsolete.

Until 1995, the government paid no municipal tax on any of its properties. That year, it agreed to pay a discounted rate of 30 to 55 percent of the normal municipal tax rate.

The one exception to the pre-1995 rule was if the Interior Ministry designated a town an “immigrant community.” In that case, the government would pay municipal tax in full – and still does, even today.

The idea was to help communities that absorbed large numbers of immigrants during the state’s early decades. But the list of these communities was drawn up in the 1950s and '60s and has remained virtually unchanged ever since.

Today, some of the approximately 60 communities on this list actually have a much lower proportion of immigrants than the national average. Yet the government still pays full tax to all of them, in comparison to the 30-55 percent discount rate elsewhere.

A prime example is Givat Brenner Regional Council, which was recognized as an immigrant community in the mid-1950s because an immigrant transit camp (Kfar Ekron) was set up within its jurisdiction. In the mid-'60s, Kfar Ekron became the independent township of Kiryat Ekron. But Givat Brenner still gets the 15.7 million shekels a year in municipal tax from the adjacent Tel Nof airbase, while Kiryat Ekron gets nothing.

Yet as of 2013, according to the Central Bureau of Statistics, immigrants who arrived after 1990 comprised a mere three percent of Givat Brenner’s population. The national average is 14 percent.

“This is a disordered market that isn’t based on any public interest,” a senior official in one government ministry told Haaretz.

“Not only is the current system unfair, but it contributes to widening gaps” between rich and poor localities, another source said.

In recent years, there have been many attempts to reapportion these tax revenues more fairly, but the local governments that would lose by it have always managed to stymie them. For example, two Zionist Union MKs who drafted private member’s bills on the issue said municipal activists had threatened to “settle accounts in the primaries.”

Defense Ministry data released in response to a freedom of information request by an NGO called the Public Knowledge Workshop shows that in 2013, the ministry paid some 485 million shekels in municipal tax for army bases and other facilities. Last year, according to one source, the sum exceeded 500 million shekels.

Other government offices paid municipal tax of about 411 million shekels last year. To this must be added the municipal tax paid by government companies like the Israel Electric Corporation or Israel Aerospace Industries and public institutions like hospitals. Exact data on these companies and institutions isn’t available, but cautious estimates put their municipal taxes at 500 to 600 million shekels a year.

Thus, in total, the government’s annual municipal tax bill comes to around 1.5 billion shekels.

A recent investigation by one government ministry found large gaps in the local authorities’ tax bases. Counting all municipal tax on businesses, homes and government buildings, the poorest towns collect about 1,600 shekels per capital, while the wealthiest collect some 5,250 shekels per capita.

Moreover, this gap is growing. From 2008 to 2013, the poorest towns increased their tax revenues by only 3 percent, compared to 16 percent for the wealthiest towns. This means the latter have much more money to invest in education, welfare and infrastructure.

The Defense Ministry data demonstrate the government’s contribution to these unequal revenues. In 2013, fully 46 percent of the municipal tax this ministry paid (some 224 million shekels) went to regional councils that contain less than 10 percent of Israel’s population.

In contrast, the urban centers that account for 75 percent of the population received only 45 percent of the ministry’s municipal tax payments. The other 9 percent went to small towns.

Thus, for instance, the sparsely populated regional councils of Ramat Hanegev and Hevel Eilot earned 37.9 million and 26 million shekels, respectively, in municipal tax payments from the Defense Ministry.

And while the houses of Hatzor Haglilit and Rosh Pina practically touch each other, but the latter gets 5.8 million shekels in municipal tax from the ministry, while the former gets nothing. Similarly, Nazareth gets nothing, but adjacent Upper Nazareth gets 2.8 million shekels.

“In most cases, the local authority doesn’t provide any services,” a Defense Ministry source said. Even trash collection services to the bases are minimal, “and nobody even talks about paving and maintaining roads or fixing streetlights.”

“There’s no reason why a regional council should receive tens of millions of shekels while the neighboring town doesn’t even get a single shekel,” he added. “The system operates semi-randomly, and the forces driving it are local interests and private lawyers, who earn a profit from the legal battles between towns trying to increase [their share] and the Defense Ministry,” they said.

In response to the report, the Interior Ministry said “the issues of municipal taxes and specifically that of 'immigrant communities', is being addressed as part of a wide reform of the municipal tax. Upon taking office, Silvan Shalom was briefed about the issue, and he ordered the office's professional echelon to present possible solutions. This process is still ongoing. "