One of the main sources of revenue for local authorities in Israel is property taxes (Arnona). The advantage of the property tax for the authority is that it is an income that is not designated for a pre-defined purpose, and the authority has flexibility in its use.

Arnona is charged per built square meter, and a different rate is charged for each use. In general, non-residential rates are higher than residential rates – an excellent reason for the authority to prefer business uses over residential ones. Another reason is that non-residential uses usually consume less service from the municipality. These and other reasons drive many local authorities in Israel to try to attract businesses. Do they succeed in increasing their income from non-residential property taxes?

According to data from the Central Bureau of Statistics, the total Arnona revenue of all the authorities in Israel in 2018 was NIS 25.54 billion, of which a little more than half, 14.15 billion, in non-residential property taxes. In 2020, we expect to see a decrease in non-residential revenue, due to the Coronavirus crisis.

The ratio between income from non-residential property and from residential property tax was 1.24 (as mentioned, slightly more income from non-residential property). The median ratio, which half of the authorities were above and half below, was 0.64, meaning that in more than half of the authorities in Israel (164 of 254), the collection of residential property taxes exceeds that of the other uses. This situation, in which there is a large difference between the median and the average, occurs because there are large gaps between the authorities.

The characteristic that most influences the property tax ratio seems to be the municipal status. While in cities and regional councils (rural areas), the ratio is high (1.36-1.37), in local councils (small urban villages) the ratio is low (0.41). In cities this is due to their being centers of services and employment, and in regional councils there are often large concentrations of industry or commerce, compared to small population, or little residential space. The five authorities with the highest ratio are regional councils.

In addition, there is a gap between the Arab localities, where the ratio is 0.46 (the collection from non-residential properties is half of the collection for residential apartments), compared to 1.21 in the mixed authorities, and 1.30 In the Jewish authorities.

What about Jerusalem? The ratio between non-residential and residential revenue in Jerusalem is 1.09. It is encouraging to see that the city, which is characterized by a very large volume of housing, manages to remain in a ratio higher than 1. However, among the cities with a population greater than 100,000 (16 cities), Jerusalem is only in 12th place, despite the fact that the volume of non-residential property taxes collected in the city is second only to Tel Aviv.