Treasury Wants Rich Localities to Finance Poor

The Finance Ministry plans to subsidize poor local authorities with tax income from wealthy ones, despite the Union of Local Authorities' objection. The union says the way to help poor local authorities should not come at the expense of wealthy ones.

A proposal to set up a "state balancing fund" for municipal rates appears in the Economic Arrangements Law that will be brought to the cabinet for a vote on Sunday.

According to the proposal, the fund will consist of municipal taxes collected on government property, such as ministries, state hospitals, military camps and government corporations - an estimated NIS 1.1 billion annually, treasury officials say.

The fund will allocate the money, giving priority to poor local authorities. This means that about a quarter of a billion shekels will be taken from the wealthier local authorities and given to peripheral ones every year.

Local authorities with a poor population but high concentration of government facilities, like Jerusalem or Hadera, are expected to remain unscathed by the proposal.

Treasury officials say that concentrating government offices and facilities in the wealthier cities is in itself harmful to the periphery. Not only do these facilities create jobs, they are hubs of intensive economic activity.

The balancing fund is intended to correct some of this discrimination without taking any of the municipal taxes paid by large-city taxpayers, by using only the taxes on state property.

Treasury officials say similar laws exist in several European countries. Britain, for example, redistributes all property taxes, not only government property taxes.

The plan includes setting up another fund into which each local authority would deposit one-third of its income from betterment taxes. These taxes are imposed on rezoning farming land for construction, for example.

This initiative is explained by the significant differences between the betterment tax imposed in the central region and in the periphery. Some 80 percent of betterment taxes nationwide have been paid in Tel Aviv and the central region. "The funds will be reallocated to reduce the gaps among local authorities," the treasury says.

The Union of Local Authorities lambasted this plan this week in a position paper distributed to the ministers, prepared by the head of the union's economics and information unit, Arye Mazliah. "The way to handle local authorities whose tax income is insufficient to provide their residents with adequate services is to give them state grants, not by damaging other local authorities," he writes.

"Past experience shows that every fund the government has established to replace income from the local authorities was slashed over the years. While the taxes the state pays are linked to the municipal rates collected by the local authorities, in the future the state's taxes will be charged according to allocations to various ministries' budgets, sums that are likely to be slashed in the coming years."

Mazliah said the union strongly objects to "nationalizing the betterment taxes that belong to property purchasers in the local authorities. The way to develop peripheral local authorities should not be at the expense of other local authorities."

The treasury responded: "Israel's periphery is well behind other regions, especially the center. We're sure that the ULA, which represents authorities nationwide, shares the belief that after many years it's time to make a significant move to help the periphery and narrow the gaps between it and the center."