Israeli Knesset Gives Preliminary Okay to Bill Giving Tax Breaks to Settlements

Treasury opposes the bill that would make West Bank settlements eligible for tax breaks based on the security threats they face on the grounds that they can’t be solved by tax breaks.

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The Israeli settlement of Kedumim.
The Israeli settlement of Kedumim.Credit: AFP

West Bank settlements will be eligible for tax breaks based on the security threats they face, if a bill approved by the Knesset in preliminary reading on Wednesday becomes law.

The Knesset vote took place after the Ministerial Committee for Legislation held a special session on Wednesday morning to approve the bill, which was sponsored by MK Bezalel Smotrich (Habayit Hayehudi).

The ministerial committee also decided that by August 11, when the cabinet is due to start discussing the state budget for 2017-18, the finance and defense ministries should draft uniform criteria for granting tax breaks to residents of towns facing security threats.

Today, security threats to the settlements are ranked on a different scale to the one used for towns near the Gaza and Lebanon borders.

Once the new criteria are in place and the settlements have been ranked in accordance with them, it will be possible to determine which are eligible for tax breaks. Security will not be the only criterion, however; it will simply be one more factor added to the existing criteria.

The Finance Ministry opposed Smotrich’s bill, both because of its cost, which is estimated at about 150 million shekels ($40 million) a year, and because the Knesset only just approved the list of towns eligible for tax breaks under the old criteria late last year. Those criteria include socioeconomic level, distance from the center of the country and proximity to the border.

The treasury argues that there is no reason to add security threats to this list, because security problems can’t be solved by tax breaks.

But the bill was backed by Prime Minister Benjamin Netanyahu, as well as by the three ministers from Smotrich’s party – Education Minister Naftali Bennett, Justice Minister Ayelet Shaked and Agriculture Minister Uri Ariel.

When the Knesset discussed the issue late last year, Smotrich asked that about 60 settlements be added to the list of communities eligible for tax breaks. Both Finance Minister Moshe Kahlon (Kulanu) and Knesset Finance Committee Chairman Moshe Gafni (United Torah Judaism) opposed the request, and Netanyahu agreed that the criteria shouldn’t be changed at that time. But he promised Smotrich he would support legislation to change the criteria later.

Smotrich welcomed Wednesday’s vote. “Now, finally, we can say we’ve built the map of settlement for Israel,” he said. “This law will enable thousands of families living in Judea and Samaria, who suffer from security threats, to receive what they deserve and to be equal in rights to the rest of Israel’s residents.”

Gafni said Wednesday that he still opposes the bill, as he thinks it will cause financial damage. Even under the existing criteria, he said, the tax breaks are costing the state 1.2 billion shekels a year in lost revenue.

The bill now goes to the Knesset House Committee, which will decide which committee should prepare it for its first reading. Several MKs have demanded that instead of being sent to Gafni’s Finance Committee, it be sent to the Special Committee for Distributive Justice and Social Equality, chaired by MK Miki Zohar (Likud). Zohar is seeking to get many poorer towns inside Israel added to the eligibility list.

This gives Smotrich some leverage in negotiations with the treasury: If he reaches an agreement with the treasury, he’ll support sending the bill to the Finance Committee. If not, he’ll push to have it sent to Zohar’s committee.