Opinion |

Israel Is a Magnet for the World’s Moneybags, and We Need to Stop It

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Russian oligarch’s 144-meter mega-yacht, designed by Phillippe Starck, cost 360 million pounds, anchored off Tel Aviv
Russian oligarch’s 144-meter mega-yacht, designed by Phillippe Starck, anchored off Tel AvivCredit: Tomer Appelbaum

“Darling, it’s become so boring here in Belgravia – none of our Russian oligarch friends can get their visas renewed. We really do need a change of scene.”

“I was thinking the same. What about Palm Beach?”

“Horrors, to be neighbors with that vulgar Trump family!”

“Be gentle, dear. If it weren’t for the president’s tax cut for billionaires we would have had to decide whether to buy that Van Gogh you’ve always wanted or buy a second private jet. Now we can do both.”

“Oh, but that awful man wants to pardon himself. Why doesn’t he have his attorney arrange it, the proper way.”

“You have a point. Then, Monaco ”

“No, that won’t do. We won’t be able to bring the super-yacht with us -- The waiting list at the marina is months.”

“St. Tropez?”

“It’s even longer.”

“Then, Tel Aviv -- or better yet Kfar Shmaryahu.”

“Kfar Shmaryahu. I like the sound of it. It rolls off the tongue, just like a special edition Dom Perignon.”

“Then let’s celebrate. You open a bottle while I call Arnon Milchan to get some tips on rights for new olim.”

It’s hard to imagine a conversation like that taking place inside the world’s penthouses and stretch limousines, but figures from The AfrAsia Bank Global Wealth Migration Review show otherwise: Last year some 2,000 high net worth individuals immigrated to Israel. That figures includes everyone from bona fide billionaires to those with merely $1 million in net assets.

Just 2,000? It doesn't sound like a big number, but it certainly is in terms of the world’s peripatetic moneybags.

In absolute terms, Israel was No. 6 in the world as a destination for the world’s wealthy. Last year, the United States lured just 9,000 HNWIs, as the report calls them, and Israel was tied with Switzerland, a traditional haunt for the rich.

Gold-plated canaries

If we’re to take AfrAsia Bank’s analysis of the situation, Israel should be happy and proud to a preferred landing pad for globe-trotting plutocrats.

As the report explains, wealth migration is good for a country, bringing capital at little or no cost because the rich aren’t big consumers of public services like schools or (heaven forbid) state allowances, and they don’t take jobs away. The worst that can be said about them is that they raise property prices.

Moreover, the rich usually have a better sense of where a country’s economy and politics are going, often before the rest of us have caught on. They are gold-plated canaries in the coal mine.

“HNWIs are often the first people to leave. They have the means to leave, unlike middle class citizens. If one looks at any major country collapse in history, it is normally preceded by a migration of wealthy people away from that country,” explains the bank.

In Israel’s case, the motives only partly apply. Israel suffers the religious tensions and safety issues that AfrAsia says are two reasons HNWIs typically flee countries, but the 2,000 immigrants figures seems to suggest billionaires don’t worry much about those things. On the other hand, Israel’s economy is doing well, the climate is business friendly and it is easy to operate a global business from Netanya.

The main attraction

Unfortunately, Israel’s main attraction is the so-called Milchan Law, named after the Israeli-American Hollywood producer Arnon Milchan, which gives new immigrants and returning Israelis a 10-year exemption on paying tax on income earned outside Israel, or even reporting it to the Israel Tax Authority. This break applies to both active and passive income, whether from the sale of assets or investments or from other ongoing income derived overseas.

It’s impossible to know how many people are taking advantage of this legally sanctioned loophole because by its very nature, no one who enjoys the benefits needs to disclose it. They need only report their Israeli income, which in most cases is marginal or non-existent, since their income is generated outside the country.

The law was passed in 2007 on the grounds that it would encourage Jews to immigrate to Israel. But the "Milchan law" also makes it so easy to evade taxes and launder money that Israel has become a global center for tax evasion.

The Israel Tax Authority has been trying to reverse the law and has stepped up cooperation with its global counterparts, but the law remains on the books. It is a boondoggle of the first order.

All Jews should be welcome to immigrate to Israel, but Israel isn’t so hard up economically that it should risk helping tax evaders. Israel is awash in foreign direct investment, which has reached record levels. It does it not need the networks or expertise that HNWIs presumably bring.

In fact, one way we know that is that Israel is producing enough millionaires of our own. The AfrAsia report estimates that the number of HNWIs in Israel grew 80% over the 10 years from 2007 (putting us at No. 14 in the world in terms of the increase) and 18% in 2017 (No. 9 and a third higher than the world average). There was no significant emigration of HNWIs last year.

A lot of that growth was due to millionaire immigrants, but most of it was generated at home, due mainly to high-tech. Now, that’s something Israel can take pride in: people who earned their millions through hard work and innovation, and, as a rule, pay their taxes.