As far as I understand it, in what is supposedly an effort to effect a decline in housing prices, the government is trying to pass what is called the "arnona law". Every city collects municipal taxes from its residents, and from businesses located within municipal borders. This arnona revenue is meant to be the bulk of any city's revenue to be used for funding garbage collections, maintenance around the city, education, activities, and whatnot. Cities collect one fee for residential properties and much higher fees from commercial properties. It seems that some cities choose to focus more on developing commercial property and build less residential, so that they can collect more arnona at the higher, commercial, rates. This supposedly causes housing prices to skyrocket due to a shortage of available housing. And there are some cities and towns that collect very nicely and are considered wealthy cities, while other cities and towns are poor with a lot of residents paying discounted arnona rates along with little commercial properties in their environs.
This supposed discrepancy is behind the arnona law. The arnona law would create a fund in which the wealthier cities in Israel would have to deposit a portion of the arnona revenues they collected (I dont know what the percentages are) and that fund would then distribute monies to the poorer cities to help "narrow the gap". This would also affect housing prices as it would somehow incentivize cities to build more residential housing, cutting down the shortage of supply of housing and stabilizing and lowering the prices.
Just on the face of it, this is socialism. Taking from the wealthier cities to give to the poorer cities. There is nothing right wing about these economics. Just on that alone it makes me think this is a bad idea. We need a freer economy, not a more restrictive one. It makes sense to me, I think, that residents pay their town municipal taxes in order to get municipal services. I dont want my municipal taxes going to pay for another cities issues. I already pay general taxes to the government and dont see why my municipal taxes should be redirected to other cities instead of being used to provide me with more and better services.
If the government wants to bridge the gap, it surely can find ways to do so without taking away my municipal services that I paid for - and cities who have money taken from them will surely cut municipal services.
Additionally, Minister of Finance Betzalel Smotritch has found a way to exclude the cities and towns in Jude and Samaria, over the green line from participating in this. Actually, they will retain the right to receive money from the fund but will be exempted from having to pay into the fund. There were also reports earlier today (though I dont know if anything will come of them) that the Likud is trying to find a way to exclude cities that are Likud strongholds so they do not get hurt by this.
I dont know if my city would receive money from this fund or if it would have to pay money into the fund. Obviously if my town will get money I will be in favor of this program because then I will benefit from it rather than lose from it :-) ... but seriously, this looks like robin Hood or some form of socialism/communism and cant be good. If we take away their revenue from investing in business and employment, what incentive will they have to continue?
It is interesting that the left wing parties are opposed to this saying it is a way to take money from the rich and give it to the Haredim and settlers. That might even be true (partially), but still - isnt that a big part of the left wing agenda? a bit of socialism, sharing the wealth, and all that?
I am open to hearing why my impression is wrong and why you think it is a good program.
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The left will not support poor Chareidim because they are poor by choice. The Left only supports those who are poor because they've supposedly been screwed over by the capitalist system.
ReplyDeleteCanada, on a national basis, has a similar thing called equalization transfers where rich provinces pay excess tax revenues to Ottawa which then doles them out to the poor provinces so that they can fund necessary services. In practice, it's just a way to transfer money from Alberta to Quebec so the French (our version of the Chareidim or Arabs, take your pick) won't scream that they're being oppressed by the federal government.
So that's the downside of this program - it could just turn into "Take money from the working seculars and transfer it to poor-by-choice Chareidi towns to keep them from collapsing."
The "left-wing" parties are not left-wing at all (at least not in economic terms); the only parties which could be considered left-wing economically are Shas and UTJ....
ReplyDeleteYour analysis is off here.
ReplyDeleteFirst of all, socialism has to do with redistributing private wealth. This is about redistributing tax revenues, which by definition are collected by the government. Arnona is a local tax the state permits municipalities to assess on property. If that system results in an unfair or skewed distribution, it make senses the state might want to even things out.
Second, this adjusts for a skew in the formula, which permits higher tax rates on commercial properties than residential. The problem with that, however, is that commercial properties depend on residential ones -- people who buy their products have to live somewhere. If one town has too much commercial vs. residential development, that means the businesses in one town are depending on the residences in the other. If these taxes are supposed to pay for municipal services, then it makes sense to even out the revenue.
And, as you point out, the higher rates for commercial properties results in some towns overemphasizing commercial development, and resulting in a shortage of residential housing. That is a good example of a government policy skewing natural development. Evening out the tax distribution would discourage this by encouraging towns to develop more residential property, and hence lose less tax revenue in distribution.
thanks. to your first point, it isnt redistributing private wealth, but it also isnt fully redistributing tax revenue. this is tax revenue not like income tax or vat that goes to the government to distribute among all its programs. this is municipal taxes meant to pay for municipal services. so I pay municipal tax for services in my city, but some of that money will be redistributed to other cities and I will get less services in my city where I paid the tax.
DeleteWouldn't the simplest answer be to equalize the two rates (business and homes)? That way there is no incentive to favor business over homes. Well, actually there still would be. Home owners need a lot more services from the city than business owners. So the real answer would be to lower arnona on businesses so that it is less than what the home owners pay.
ReplyDeletethat's not a bad solution. it would also lower taxes for businesses and thus lower prices for the consumers and spur more business.
DeleteI heard on Echad Bayom today an analysis of the debate. It seems the real solution is to increase arnona rates for residential, but nobody wants to do that. This is what would encourage mayors to build more residential properties. The amount they are going to be taking from this fund (and that is if the politicians dont divert the money to other needs like they have done with other such funds they created) is a drop in the bucket and not nearly enough to actually assist cover the costs of putting in more infrastructure and building more residential properties