Israel, and Tel Aviv in particular, give preference to high-tech companies over nursery schools and health clinics, through a discount on their municipal taxes. That’s the conclusion that can be drawn from the commercial municipal tax order for 2022.
The effort to encourage high-tech over other businesses has a long history. In the 1990s, when high-tech was in its infancy, intensive encouragement of what was considered a new industry at the time was required. Interior Ministry officials decided to permit any local government to grant a special discount to businesses that were classified at the time as “software houses.”
Because the provision regarding the municipal tax (arnona) hasn’t changed over the past three decades, a situation has been created in which the central government has been permitting mayors to continue to provide excessive arnona discounts to high-tech companies that have grown and become wealthy, while the public has continued to pay more for necessary services – either directly or indirectly through their taxes.
A perusal of the 2022 tax order for the city of Tel Aviv, for example, reveals an unparalleled absurdity. While 621 “software houses” are paying just 176 shekels ($51) per square meter per year, it turns out that nursery schools have to pay 217 shekels per square meter and another 30 shekels for every square meter of playground. Medical clinics are also required to pay more than software houses – 188 shekels per square meter per year. And hospitals – which are funded by taxpayers – pay about 100 shekels per meter more than high-tech companies, which benefit from the discount due to the antiquated classification.
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Can the Tel Aviv Municipality change the situation on its own initiative? In large part it can, but it would require good will and major effort. That’s because the national arnona order of 1992, which created uniformity regarding arnona payments, limited the local authorities’ range of decision-making. Until 1992, every local government decided its arnona rates for itself, but ever since, it has been the central government arnona order that has prevailed.
This means that to change the situation, a local government would have to ask the interior and finance ministries to make the change. But that would raise the question as to what motive Tel Aviv Mayor Ron Huldai or any other mayor would have in doing so. After all, a city’s residents are a captive clientele, and cities are interested in attracting established high-tech employees who would work and live there.
So the ball is in the court of Interior Minister Ayelet Shaked, who can rectify the anomaly created over the years. Shaked needs to recognize that what was right for a company and for the Israeli economy in 1992 isn’t at all correct today. What was legislated with good intentions has over the years become a system that has been making the weak weaker and the strong stronger. And along the way, it has increased the cost of living.
The above article is Haaretz's lead editorial, as published in the Hebrew and English newspapers in Israel.