Jerusalem Post Editorial: Kahlon’s reforms

The first state budget to bear Finance Minister Moshe Kahlon’s byline is expected to amplify his claim to the mantel of social reformer.

August 8, 2015 22:32
3 minute read.
netanyahu kahlon

BENJAMIN NETANYAHU and finance minister Moshe Kahlon.. (photo credit: REUTERS/BAZ RATNER)


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The first state budget to bear Finance Minister Moshe Kahlon’s byline is expected to amplify his claim to the mantel of social reformer. Hence the plethora of populist initiatives such as coercing heirs to sell the homes they inherited from their parents quickly or lose tax exemptions. Why? The assumption is that this would flood the market with apartments and fix the supply-demand ratio.

This is only one among numerous off-the-wall schemes. What ties them all together is a populist orientation that pits “the people” against “the elite” and ballyhoos sweeping, often unrealistic sociopolitical changes.

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Because these are nonspecific, they are presumed to offer something for everyone and thus appeal to broad segments of society.

Claiming to voice the undiluted will of “average folks” versus oppressive and privileged classes can be intoxicating but also grossly misleading.

Thus, among Kahlon’s gimmicks is the plan that municipalities that managed to collect local rates efficiently – and to boot manage local affairs properly enough to ensure a balanced budget – would be obliged to underwrite the expenditures of malfunctioning municipal administrations (not necessarily in the periphery).

At first glance, nothing seems fairer than getting the “haves” to shell out for the “have-nots” – to say nothing of the fact that it would make Kahlon look like the champion of “sharing the wealth.” Likewise he would garner glory by appearing not to have raised taxes. But that is hardly the whole truth because simultaneously he gives the green light for massive local rate hikes to fund non-local outlays.

Kahlon can take pride in his apparent benevolence and in so he can doing score hefty PR points. The idea is that while we may not pay more to the single largest revenuer, we would shell out exorbitantly more to our municipality or local council, whose greatest source of income is property tax (arnona).

This works well for Kahlon – the more the municipalities rake in, the less he needs to subsidize them from the state budget. The natural, undisguised aim of the Treasury is always to limit its contributions to local authorities and it is the undisguised aim of local authorities to enlarge their revenues. Both sides, therefore, can only gain from sticking ordinary households and businesses with the tab. Hence, everybody wins – except the taxpayers.

Meanwhile, on the sly, the Treasury is hatching plans to divert income 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 help subsidize educational and welfare outlays.

It is all a convoluted way of saying that residents of some cities will be obliged to pay for the services accorded to residents of other cities. Essentially this epitomizes 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, again regardless of place 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 locale. This generally goes to make up for what the central government does not finance.

When the central government seeks to compel some cities to spend more for the sake of others, the distinction between local and central taxes is broken down. The local taxes paid by residents in one town bankroll the residents of another.

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

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 is obstructionist, to say the least.

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