Analysis

How Israel’s Wildfires Became an Act of Terror

Almost everyone — homeowners, insurance companies and the finance minister — benefits from the Israel Tax Authority’s hasty decision to declare the recent blazes politically motivated arson.

Haifa Fire
Gil Eliyahu

Were most of the fires that broke out across Israel last week caused by arson, perpetrated by terrorists, or simply the result of hot, dry air and strong winds?

As it turns out, that isn’t just a question for the police and the Shin Bet security service. The decision has consequences for the national budget, the public image of both Finance Minister Moshe Kahlon and the insurance companies and for the household finances of the victims, which all goes to explain why the Israel Tax Authority declared that most of the blazes were caused by politically motivated arson, long before the experts completed their investigations.

The Fiscal Angle

The compensation that homeowners will be getting from the government won’t be coming out of the state budget, which the Finance Ministry guards jealously. Instead, it comes from a dedicated Property Tax Fund, which is entitled to 25% of all the taxes collected from real-estate transactions.

The epicenter of the first fire in Nataf, November 27, 2016.
Olivier Fitoussi

The fund is there to compensate homeowners, businesses and local governments for damage resulting from war and terrorism and was last put to use after Operation Protective Edge in 2014. It currently has around 8.3 billion shekels ($2.2 billion), after being topped up by some 1 billion shekels last year. And it’s due to get another 1.7 billion shekels this year.

The big increase in the balance is due to the sky-rocketing value of property in Israel and the concomitant rise in tax collection. But the treasury decided to disburse the money in advance. One reason was to make sure the fund has reserves ready for the next, inevitable war. Another was to keep the billions out of the hands of politicians, who might be tempted to use it elsewhere. In any events, the more than 1 billion shekels that will be paid out as a result of the fires will not affect the state budget.

The Humanitarian Angle

The decision by Moshe Asher, the Tax Authority chief, to issue a list of communities whose fires were caused by arson, will save a lot of families a lot of grief. It means that homeowners without insurance coverage will receive compensation from the government, albeit less than they would from private insurance.

Israeli firefighters extinguish a fire in the northern Israeli city of Haifa following a wildfire, on November 25, 2016.
Menahem Kahana, AFP

The police accused the taxman of rushing to conclusions, but the fact is that a full investigation of the fires will take a long time, during which hundreds of people whose homes were destroyed or damaged would get no money to pay for the repair work or lost property. Those with private insurance would have to wait as well.

Being a nice guy, however, has its moral hazards. After the 2010 Carmel Forest fire, the government set a new precedent under which it paid out compensation to victims even though there was no issue of arson and it was under no obligation to do so.

Only 74 homes were damaged, and only 10 had no insurance coverage at all, but officials were careful to structure the program to make sure the state’s involvement didn’t deter people from buying coverage in the future. Those with no insurance got lower rates of compensation than those who had at least some insurance.

This time, however, the government will pay the same rate of compensation to everyone — a generous but perhaps unwise decision.

The Political Angle

Finance Minister Moshe Kahlon has cultivated an image as the friend of the middle class and the poor, which is why he has cut taxes and focused so much of his attention on reining in housing prices and cracking down on the banks. Media coverage of homeless families waiting to be compensated by the state wouldn’t be helpful, and so he acted quickly to make sure the money would be paid out.

In a meeting with insurance executives on Tuesday, Kahlon and his deputy Moshe Cohen also won the consent of the insurance companies to pay out compensation to policyholders even though under the terms of the contracts they are exempt from covering damage from war or terrorism. Now Kahlon and Cohen can also claim a victory for policyholders.

The Business Angle

But why did the insurance companies agree to make the payouts? For one, because they are as image-conscious as the finance minister and didn’t want days of media coverage of homeless families pointing the figure at their insurance company for getting out of compensating them.

In any case, they agreed only to pay the difference between the Property Tax Fund payment and what they would have paid to policyholders, which doesn’t add up to a lot of money for them.

There’s also the possibility that they made a deal with the treasury: Declare the fires a result of politically motivated arson, which will save the insurers the cost of making a full payout, and in exchange they agreed to voluntarily cover the difference.