Israel, and Tel Aviv in particular, favors high-tech companies over kindergartens and health clinics, through a discount on their municipal taxes. That’s the conclusion that can be drawn from the commercial municipal tax order for 2022.
The effort to encourage high technology over other jobs has a long history. In the 1990s, when high technology was in its infancy, intensive encouragement was needed for what was considered a new industry at the time. Interior Ministry officials decided to allow any local government to grant a special discount to companies classified as “software houses” at the time.
Since the provision relating to the municipal tax (arnon) has not been changed in the past three decades, a situation has been created in which the central government allows mayors to continue to give excessive discounts on the arnnon to high-tech companies that have grown and become rich, while the public has continued to pays more for necessary services – directly or indirectly through its taxes.
A review of the 2022 tax order for the city of Tel Aviv, for example, reveals unprecedented absurdity. While 621 “software houses” pay only 176 shekels ($51) per square meter per year, it turns out that kindergartens have to pay 217 shekels per square meter and another 30 shekels for each square meter of playground. Medical clinics are also required to pay more than software houses – 188 shekels per square meter per year. And hospitals – funded by taxpayers – pay about 100 shekels per meter more than high-tech companies, which benefit from discounts due to outdated classification.
Can the municipality of Tel Aviv change the situation on its own initiative? To a large extent it can, but it would require good will and a lot of effort. This is because the national arnona order of 1992, which created uniformity in the payment of arnona, limited the scope of decision-making by local authorities. Until 1992, each local government decided for itself the amount of the arnon, but since then the order of the central government has ruled.
This means that in order to change the situation, the local administration would have to ask the ministries of interior and finance to make the change. But that would raise the question of what motive Tel Aviv Mayor Ron Huldai, or any other mayor, would have for doing so. After all, city dwellers are a captive clientele, and cities are interested in attracting established high-tech employees to work and live there.
So the ball is in the court of Interior Minister Ayelet Shaked, who can correct the anomaly created over the years. Shaked must recognize that what was right for the company and for the Israeli economy in 1992 is not right at all today. What was legislated with good intentions, over the years has become a system that makes the weak weaker and the strong stronger. And along the way it increased the cost of living.
The above article is a Haaretz lead editorial, published in Hebrew and English newspapers in Israel.
