Yoav Fisher
Father, Economist

The Arnona Law is sham that will harm All of us

Over the last few days there has been a lot of drama surrounding the Arnona Law proposed by Finance Minister Smotritch. The law aims to transfer municipal tax income collected from non-residential properties to a public fund, whereby the money accrued in that public fund will be distributed to certain cities to support the construction of new apartments.

Smotrich is selling this to the public as a way to lower housing prices and increase the supply of apartments to support cities in the “periphery”. And while addressing the housing crisis in Israel is a legitimate objective, the Arnona Law, based on the minimal information that has been revealed, is not going to do any of this, and is going to immediately harm every single citizen of Israel, from all political sides.

It is critical that each citizen takes some time to understand the ramifications of this damaging law because it will effect you personally. I encourage you to read on and share.

There are two main reasons for this:

  1. The law will encourage new housing units not based on where there is actual need. This will result in a major imbalance in the local market and create an even worse housing crunch in areas that are most in need of new housing.

But more importantly,

  1. The law will directly and immediately decrease the quality of social services, welfare, and education for every single person in Israel.

But let’s back up to understand what is really going on…

Arnona is municipal taxes that Israeli cities collect from tenants: residential, commercial, industrial, or whatever. Arnona is used to supplement money that is given to each city by the national government, and is specifically allocated to things like social services, welfare, education, culture, and sport within the city. For example, trash collection and social workers are funded by Arnona. Your local Gan (preschool) is dependent on Arnona.

The public housing fund proposed by Smotrich will take a percentage of Arnona – specifically non-residential Arnona – on a fixed rate per city per year. Each city has a different rate based on various parameters, including socio-economic status and if the city is in the periphery.

Smotrich and the Finance Ministry recently revealed the percentage of collection for each city. Included in this is also a measure of the socio-economic rank and the periphery rank, as well as how much each city will get (or contribute) to the fund to build new housing.

The cities that will get the most amount of cash from the Fund are Beit Shemesh, Ashkelon, Bat Yam, Netivot, and Beer Yaakov. Of course they will all also contribute to the fund, but because they can build the most amount of new housing units they will get the largest cash distribution from the fund. Beit Shemsh, for example, will be given over 100 Million Shekels in the coming five years to build new housing projects.

The first problem with this is that there is no correlation at all between what Smotrich proposes and the cities where housing is most desperately needed.

There are a number of cities in Israel that severely lack housing, specifically Petakh Tikva, Haifa, Jerusalem, Rehovot, Holon, Kfar Saba, and Bnei Brak. Bizarrely, all of these cities except Jerusalem, Bnei Brak, and Rehovot will actually not get any money. According to Smotrich, Haifa, Kfar Saba, Petakh Tikva, and Holon – cities that are most in need of new housing – are listed with negative proceeds – meaning they pay into the fund without getting anything in return.

This clearly makes no sense and is detached from the reality of what actual Israelis need.  Jerusalem, Rehovot, and Bnei Brak will get new housing units, but there is no consideration for the infrastructure to support new housing, like parking, roads, parks, etc…

Meanwhile Petakh Tikva, Haifa, Holon, and Kfar Saba, which desperately need housing will get nothing, and will actually have to pay for other cities to get housing, again without any consideration for infrastructure. This will only exacerbate the housing crunch in Israel and lead to increased congestion and sprawl.

It is also important to note that there is little correlation between “Periphery” status and the proceeds from the fund. There are plenty of cities like Metula, Mitzpeh Ramon, and Beit Shean that are categorized as “Periphery” yet have negative proceeds from the fund (they only pay in and get nothing back). Meanwhile there are plenty of cities like Ramat Gan and Givat Shmuel that are unequivocally in the center yet get tons of proceeds.

But the bigger problem is that the Arnona Law is going to immediately reduce all of the critical aspects of city life – social services, welfare, infrastructure, and education – across every city in Israel.

The Central Bureau of Statistics releases public data on the municipalities – where they get their money from and what they spend it on. Using this data, along with the data published by the Finance Ministry, we can see non-residential Arnona for each city, and how much each city will contribute to the fund over the coming five years. We can even get an estimate of how much each city will have to pay in to the fund per resident.

It is critical to remember that Arnona supports local social services, yet the money is going to housing. So even if a city gets funding, it is at the expense of social services! There is practically no correlation between extra housing and quality of life in a city. The quality of life across the entire political spectrum will be harmed by the Arnona Law – everything from trash pick up to day care to social welfare for the needy will be decreased.

I would argue that the situation will even be worse in those cities that do build housing, because the Arnona Law does not give any money to these critical social services, which will now these cities will be forced to spend less money on a larger population.

The entire premise of the Arnona Law proposed by Smotrich makes no sense. It is not connected to local market needs, it has no economic justification, it does not help the periphery, and it blatantly damages the welfare of all Israeli citizens.

So why does this law even exist?

Could it be that the motivation is political?

The Ultra-Orthodox and Ultra-Nationalist parties (Shas/UTJ/Religious Zionism) received just below 25% of all votes in the last election, yet they are receiving a noticeably disproportionate amount of funding from the proposed Arnona Law.

Contrary to everything that Smotrich has said, and using numbers that he publicly divulged, it seems to be that the only real motivation for this law is to build new houses in areas that have a strong political support for the Ultra Orthodox and Ultra Nationalist parties, at the expense of all other parties. And yes, even at the expense of traditional Likud voters. (Yet another way the coalition parties are actively abusing the Mizrachi community they claim to support.)

The Arnona Law is an unprecedented catastrophe meant to build housing for the Ultra Orthodox and Ultra Nationalists at the expense of critical social services. Every single one of us will be harmed by this law, even those who live in cities that will get new housing.

About the Author
Yoav Fisher lives and works in Israel.