Arnona hikes cost business NIS 52m. in 2005

Despite gov't policy requiring that rises in municipal taxes be linked to inflation, 39 local authorities were raised tax levels beyond the consumer price index.

jerusalem city hall 88 (photo credit: )
jerusalem city hall 88
(photo credit: )
Despite government policy requiring that rises in municipal taxes (arnona) be linked to inflation, 39 local authorities were allowed to raise their tax levels on businesses beyond the consumer price index in 2005. According to the Federation of Israeli Chambers of Commerce, the local authorities concerned raised arnona 5.5 percent, costing the business sector NIS 52 million in additional taxation during the year. "The mechanism for [granting] exceptional authorizations - intended to solve limited problems only - has created a policy devoid of fiscal responsibility that encourages the [local] authorities to continue requesting easy money to fund their deficits, instead of improving their performance," commented FICC President Uriel Lynn on Tuesday. For example, Yehud increased its 2005 arnona rate by 10%, Yokneam Illit raised it 9%, Yavneh 7%, Jerusalem 5%, and Eilat 4%, the FICC said. 2005's inflation rate for determining arnona rate raises was set as the growth of the CPI between September 2003 and September 2004, which was 0%, said FICC economics and taxation deputy director Israela Many. Lynn called on the Finance and Interior Ministries to quit issuing permits for exceptional arnona raises, arguing that the practice "perpetuates a perverse situation, whereby local authorities continue to load the burden of their wastefulness and inefficiency onto the shoulders of the business sector." In response, the Finance Ministry said its policy is to approve as few exceptional arnona raises as possible. Each request is judged "according to relevant criteria," and "many" are ultimately refused, Finance said. The Interior Ministry noted that 132 requests were filed, and only 39 were approved. Deputy Interior Minister Ruhama Avraham pledged to re-examine the policy allowing exceptional arnona raises on businesses for 2006. An Interior Ministry spokesman stressed that the additions were allowed in the context of rehabilitation programs or in instances where arnona levels in some authorities were lower than in others. Prof. Eran Razin of the Hebrew University's geography department and researcher at the Floersheimer Institute for Policy Studies, however, said the current mechanism of authorizing exceptional tax hikes is "vital." "There are all sorts of distortions whose times have passed, and many local authorities are in serious financial crises, so there is no escape from raising arnona," he said, pointing to the lack of autonomy for local authorities to set their own tax rates, which were frozen along with all inequalities between them in 1986. Still, Razin stressed that not every raise is necessarily justifiable, and that each case must be judged according to its own context. Another question is whether businesses are being unfairly targeted for arnona hikes that are not applied to residences as well, Razin said. When residents are required to pay higher taxes, the mayor will likely pay a political price, he said. "Businesses don't vote at the ballot box," and their primary recourse would be to relocate, "but not all businesses are so mobile," Razin said. The allowed increases reduced the local authorities' deficits by roughly one fifth, from NIS 258m. in 2004, the FICC said, noting that the deficit constituted 6.8% of the authorities' total tax revenues received.