Sharing the wealth

On the sly, the Treasury is hatching plans to divert tax revenues from the country’s solvent, most prosperous and patently well-managed municipalities to prop up the insolvent, least prosperous and most badly managed local authorities. Pro forma, this “sharing the wealth” arrangement would subsidize educational and welfare outlays.

The idea is to shift around NIS 1.2 billion by forcing stronger municipalities to match government spending on education and welfare to a greater proportion than hitherto. Thus, stronger municipalities will fund 50 percent of their education budget from their own resources so that poor municipalities will need to contribute no more than 5%.

The Treasury further proposes that rather than let cities collect property taxes from locally situated government offices, these taxes will be pooled in a central fund and apportioned to other municipalities on the basis of need.

All the above is a convoluted way of saying that residents of some cities will be obliged to pay for the services accorded to residents of other communities.

On paper it sounds fair to support have-nots at the expense of those who seem to be doing better. But that is the philosophy that governs the payment of taxes to the central government. The revenues collected from all citizens, wherever in the country they reside, are pooled to the advantage of the collective, regardless of domicile.

Local taxes are inherently different, however. Here the notion is for residents of a community to pay rates for the benefit of their own locale. This generally goes to make up for what the central government does not finance.

When the central government begins to fiddle around with the funds it allocates to different cities or when it schemes to force some cities to spend more for the sake of others, the inherent distinction between local and central taxes is broken down. What actually happens is that the local taxes paid by residents in one town go to underpin the residents of another.

Tel Aviv Mayor Ron Huldai replied on behalf of the Forum of Fifteen (the strongest municipalities), which he heads. What the Treasury is mulling, he said, is “a de facto cut in central government services while placing the onus for them on local governments,” (thereby forcing them to collect at higher rates) and “making municipal taxes another revenue source for the central government.”

Subtext: Money collected from residents for given purposes will be earmarked elsewhere and disappear somewhere in the Treasury’s coffers. This in nationalization of local taxes.

As Huldai asserts, “This is tantamount to usurping the local taxes paid by 4.2 million Israelis” who reside in the 15 middle-class cities, and “levying extra taxes on 55% of the citizenry,” without the central government shouldering the blame for the additional burden.

But this is worse than just sharing the wealth. It wouldn’t be so objectionable were it merely a matter of the periphery being disadvantaged because of its remoteness from economic hubs. But given our anomalous reality, well-administered cities are required to foot the bills of extremely malfunctioning administrations – in many cases responsible for their own breakdown.

These basket-case municipalities frequently and willfully fail to collect local taxes, thereby hampering their effectiveness and triggering vicious cycles of incremental insolvency. In this category – concomitantly plagued by nepotism and touched by corruption – is much of Israel’s Arab sector, where the notion of not collecting what the “Zionist system” requires enhances any mayor’s popularity.

Without their own income, municipalities are bound to fail. Going broke and then expecting the government to bail them out is their calculated policy. Here any wealth-sharing devoid of stringent built-in controls and deterrent penalties will flush taxpayer money down the drain.

Not only is this patently unfair, it is counterproductive in the extreme. Vastly different municipalities cannot all be treated as if they were identical and afflicted by the same malaise. It is reasonable and desirable to decentralize where possible, just as there is abiding need to tighten the reins of supervision on palpably delinquent local authorities. For the Treasury to undermine this logic obstructs the common good.