Yair Assaf-Shapira

“The Government shall provide for the development and prosperity of Jerusalem and the well-being of its inhabitants by allocating special funds, including a special annual grant to the Municipality of Jerusalem (Capital City Grant).” These responsibilities are listed in the Jerusalem Basic Law. To what extent, then, is Jerusalem dependent on national funding, and to what degree is it fiscally self-sufficient?
In 2008, Israel’s government contributed approximately one billion NIS to the ordinary budget of the Jerusalem Municipality (in addition to another 208 million NIS allocated to Jerusalem outside of the ordinary budget). The city of Jerusalem was the largest recipient of national funding of all of Israel’s cities, and it also enjoyed high municipal tax revenues. Municipal tax revenues, also known as Major General Fund tax revenues, are collected from taxes and fees that are paid directly to the city such as the Arnona property tax, service fees, business licenses and other taxes. The larger the share that municipal tax revenues play in the city’s annual budget, the more the city can be said to be self-sufficient and independent of the central government, and vice versa.
Jerusalem’s tax revenues reached 2.18 billion NIS in 2008 – more than any other local authority in Israel that year, with the single exception of Tel Aviv – Yafo (3.42 billion NIS). Haifa, by comparison, the third largest city in Israel after Jerusalem and Tel Aviv – Yafo, collected 1.41 billion NIS. Jerusalem’s high municipal tax revenues are undoubtedly connected to its sheer size as the largest city in Israel.
Jerusalem’s tax revenues covered 68% of its ordinary budget – a percentage that was significantly higher than any other local authority in the Jerusalem district, excepting one small locality, Har Adar. However, 68% was still low in comparison with Haifa (71%) and Tel Aviv – Yafo (88%). All local authorities in Israel rely on national funding in addition to their self-generated municipal tax revenues for their ordinary budget.
The primary source of self-generated income in all Israeli cities is the Arnona property tax imposed on residential and non-residential properties. In 2008, the city of Jerusalem collected 1.41 billion NIS in property tax (Arnona), as compared with 2.32 billion NIS collected by Tel Aviv – Yafo and 945 million NIS collected by Haifa. Comparatively speaking, residential property taxes accounted for a larger share of Jerusalem’s total property tax revenues in comparison with Haifa or Tel Aviv – Yafo, and in 2008, 47% of Jerusalem’s Arnona tax revenues were accrued from residential properties.
Source: Central Bureau of Statistics, Press release from 28/04/2010: Local Authorities in Israel 2008