Municipal taxes

It might be a good idea for the state comptroller to turn his attention to what underlies municipal tax intricacies.

Tel Aviv view (photo credit: Marc Israel Sellem)
Tel Aviv view
(photo credit: Marc Israel Sellem)

The Knesset Finance Committee earlier this month stymied deliberations on requests by the Finance and Interior ministries to overhaul local property tax criteria. These would have put a heftier bite on us all by, for example, taxing us based not only on the size of the interior of our residences and businesses, but on the exterior area they occupy.

The gross measurement of a given home would matter rather than its net inside space. The thickness of the walls would be factored into each apartment’s or commercial space’s size, as would parking lots, driveways and bomb shelters, as well as multiple- unit structures’ staircases, corridors and lobbies – all communal space, possibly even yards.
The reckoning is that this could increase tax revenue by 25 percent. Local authorities were supposed to gain NIS 450 million already in 2014.
Sharply raised overhead for commercial enterprises would probably have been passed on to consumers in the form of higher prices. Most unsettling, however, is the potential for each municipality to arbitrarily impose its variation on the theme.
The fact that this maddening scheme has, for now at least, been put on ice hardly mitigates the gall of its concoction in the first place or its implications for the larger picture. It is important to keep in mind that this is not the eccentric brainchild of a minor local functionary. This thorough change in the rules of the game came from high up and was a hair’s breadth from being adopted. It is also important to remember that the natural, undisguised aim of the Treasury is to limit its contributions to local authorities’ budgets and it is the undisguised aim of local authorities to increase their revenues.
There is, therefore, a mutual interest to stick ordinary households and businesses with the tab. The central government can keep on priding itself – justifiably so – for not raising taxes and it can thereby score hefty political/PR points. Besides, tax hikes during periods of stunted economic growth are nothing short of daft.
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).
Yet since the local rates are already exceedingly high, there is sense in not incurring taxpayer wrath by hiking them outright. The ploy instead is to alter the gauge for the levies.
This particular design for so doing may have been nipped in the bud, or it may have just been temporarily shelved, but the motivation for such shenanigans is likely to soon manifest itself again under this or a similar guise.
This is nothing to belittle. We have suffered similar wiles (among them steep rises in utility fees and in the way we pay for our water) and are doubtless in for more. Charging us for the space the exterior walls of our abodes occupy is just one embodiment of the creative money-grabs hatched by Treasury officials.
From a broad perspective, any tax increase is illtimed and ill-conceived just now. The antidote to economic slowdown is to strengthen the citizenry’s spending power and thereby empower the marketplace.
Higher taxation reduces the money supply.
Higher local taxes hurt just as much as higher income taxes.
Municipal taxes, furthermore, are not fully progressive.
True, residents of posh areas and larger homes pay more, but beyond that local taxes are regressive because almost everyone pays and income level plays no role except for social welfare recipients.
Revamped arnona criteria mean a minimum of hundreds of shekels more per dwelling.
The cities cite higher expenses as mandating hikes, but residents find themselves liable for municipal squandering. We are, for instance, bankrolling perks for elected officials. In cities sporting an excess of deputy mayors this can amount to egregious outlays.
It might be a good idea for the state comptroller to turn his attention to what underlies municipal tax intricacies.