Fixes for Crowded Israel's Hospitals, Roads, and High Home Prices? Not Till 2020

Reforms in key areas are put on hold until next government

An Israeli road, April 2019.
Ilan Assayag

Israel’s long interregnum is going to put a lot of key government initiatives on hold as politicians return to the campaign trail for a second time in six months.

The freeze encompasses a host of measures whose delay most voters won’t be ruing, including raising the legal retirement age and the imposition of a congestion tax on Israel’s roads.

But the freeze may also mean no extensions for popular programs, like Finance Minister Moshe Kahlon’s “Family Net” package of benefits to working families as well as reductions on customs and purchase taxes on apparel and home electronics. These programs are due to expire at the end of 2019.

Home prices are unlikely to be affected by Israel’s back-to-back elections and the policy vacuum they leave. That is because most short-term real estate activity relies on local planning committees rather than on national policies.

Meanwhile Kahlon’s flagship policy, the Machir L’Mishtaken (Buyer’s Price) program will continue holding auctions for builders and lotteries for home buyers. The problem is that the program hasn’t done more than create a respite for rising housing prices in high-demand parts of the country.

Kahlon himself has admitted Machir L’Mishtaken is only “a band aid” for the problem of high housing costs and that the real solution requires the government to step up supply of new homes.

Much of that is being done through urban renewal programs; the problem is they have been delayed by the inability of the cities to provide adequate infrastructure for the increased population they bring. “Umbrella agreements” with local authorities that were supposed to deal with this issue quickly have been plagued by poor implementation. The next government is expected to solve this by, among other things, providing hundreds of millions of shekels toward local infrastructure initiatives.

The giant Metro Project – a 150 billion shekel ($41 billion) subway system for the greater Tel Aviv (Gush Dan area) aimed at easing the area’s massive traffic congestion – is on a tight timetable if the first contracts are going to be put out for bids by next year as planned.

The government company NTA is supposed to complete planning and coordination with local authorities by the end of 2020 and the treasury budget division is preparing the required legislation. The government still needs to approve it quickly or the entire project will be delayed.

The government must also decide how it is going to be funded – entirely by taxes, a mix of public and private spending, or some other model. This will have to be legislated by the next government.

A less popular but no less critical plan for easing traffic is a proposed congestion tax that would be levied on vehicles entering major cities at peak commuting hours.

Israel Katz, who is now transportation minister, opposed the idea, apparently because it is so politically unpopular. However, senior officials at the treasury and Israel Tax Authority support it. Prime Minister Benjamin Netanyahu hinted that he backed the idea before the election.

Officials are concerned not only about congestion but also about a tax shortfall. The growing use of hybrid and all-electric cars in the years to come will cut into the 40 billion shekels of taxes the state collects on vehicles, much of it coming from taxes on fuel. Imposing a congestion tax would help compensate for that loss.

Yaakov Litzman, the deputy health minister, claimed to have won major concessions for Israel’s healthcare system in coalition talks with Netanyahu. Among other things, they included a 250 million shekel annual addition to the health basket of government-subsidized medicine and 1 billion shekels of funding to reduce lines and crowds in healthcare services. Part of this was to be funded by a 0.5 percentage point increase in the health tax.

With the collapse of the coalition, all that has been set aside until the next round of talks begins some time after the next election on September 17. In the meantime, the health system will operate on its 2019 budget not only all of this year but into 2020, until the next Knesset approves a spending plan for that year.

A committee formed to look into the problems of Israel’s internal medicine departments had recommended a plan that would end the phenomenon of assigning hospital patients to beds in corridors, within five years. That proposal also awaits the formation of the next government.