Cabinet Clears Plan to Cut Hotel Charges 20%

Hotels in Israel are expensive enough, certainly by regional standards, to deter tourism; recommends to take effect in 3 months.

The cabinet approved a raft of proposals at its Sunday meeting that could mean the cost of staying at an Israeli hotel falls as much as 20%.

The recommendations, based on a report of a committee appointed by Tourism Minister Stas Misezhnikov, are to take effect within three months, unless otherwise directed by the cabinet.

The committee, established a year ago and headed by the ministry's director general, Noaz Bar Nir, found that the main barrier to building new hotels in Israel - and lowering room prices - is the low profitability of the hotel business. The committee blamed the low profitability on excessive government regulation and bureaucracy.

The recommendations include those aimed at cutting the cost of constructing new hotels as well as reducing ongoing operating expenses.

The Tourism Ministry expects flight and hotel costs to drop between 15% and 20%, and tourism to Israel to rise by up to 10%. Half of that boost would be attributed to lowered hotel costs and the other half to an open-skies agreement signed in July between Israel and the European Union to increase competition between airlines flying to Israel.

The changes could bring in an additional 225,000 tourists a year, create 7,000 jobs in the tourism industry, and bring in an additional NIS 1 billion in revenues, according to the ministry.

One particularly heavy burden for hotels is the municipal property tax (arnona ), which is three times higher here than that paid by hotels in Europe. The committee suggested swapping a fixed tax rate for one based on occupancy.

Following the committee's report, the cabinet has instructed the interior, finance and tourism ministries, along with the Union of Local Authorities in Israel, to establish a joint team to examine ways of equating local property taxes with those paid by hotels in other OECD countries.

Property tax breaks

Among the committee's recommendations as to how to achieve this was a proposal for the state to pitch in during economic crises to the tune of one-third of the property tax while the city simultaneously lowers the rate another third - giving hotels a hefty two-thirds discount on municipal tax.

After the committee made its recommendations, the Israel Police was tasked with finding ways of gradually reducing security requirements at hotels, which are a major expense here - and much more costly than in most other countries.

The committee recommended that police lower hotel-security standards, with the aim of cutting into the more than NIS 185 million spent on security annually, according to the Israel Hotel Association. One possibility is that hotels would be designated as closed, secure areas.

Another outsized expenditure at Israeli hotels, compared to their overseas counterparts, is for kashrut services and supervision. The cabinet has now directed the Chief Rabbinate, along with the Prime Minister's Office and the Religious Services Ministry to find ways of lowering such costs.

The cabinet also canceled the requirement for an instructor in hotel gyms, as long as they are open only to hotel guests. The Culture and Sports Ministry is to set regulations on how to carry this out. In addition, hotel pools will not be required to have a lifeguard present at all times, as to be determined by the Health Ministry.

The Tourism Ministry will immediately change the standards for the building of hotels, including easing layout regulations that currently require a minimum amount of commercial space in all categories of hotels.

The recommendations include permitting cheaper building techniques and axing requirements that prolong the construction timeline. For some classes of urban hotels, it is recommended that requirements on dining and kitchen space become mere suggestions.

The Tourism Ministry has also been directed to establish a unit to prevent the use of land designated for tourism purposes for any other purpose.

A joint working group consisting of the directors general of the PMO and the Tourism Ministry, as well as the treasury's accountant general and the head of the budgets division will present, within 45 days, proposals to solve the lack of credit available for building new hotels, which partially stems from the security situation.

The committee also recommended expediting construction permits for hotels in popular tourist destinations like Jerusalem, Eilat, Tel Aviv and Tiberias and telling the Israel Lands Administration to set minimum bids for land zoned for hotels at 30% of the assessed value rather than the current rate of 50%.