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Evaluating the Controversy Surrounding the Israeli Arnona Fund

Evaluating the Controversy Surrounding the Israeli Arnona Fund

Written by: Ethan Levy

If you have been following the news here in Israel for the past few weeks, you might have heard about the debate surrounding the proposed Arnona Fund. The Arnona Fund is a bill that was proposed in the Knesset that would essentially take a portion of the earnings earned by wealthier municipalities through property taxes, or Arnona, and redistribute these earnings to the poorer areas. While the bill seems to have some support, there are many that are opposed to the bill and what it means for their communities. This article aims to explain the controversy and to provide differing perspectives surrounding the proposed Arnona Fund.

What is Arnona?

Arnona is a municipal tax imposed by local authorities in Israel on property owners or tenants. It is used to fund various services and infrastructure within the jurisdiction of each local authority. These services include infrastructure management and maintenance, waste removal, firefighting services, cultural events, and education systems. Municipal taxation is necessary to provide financial support for these responsibilities. The Arnona tax, determined by local authorities based on the municipalities Ordinance and the Local Councils Ordinance, is imposed on all types of properties, whether residential or used for commercial or other purposes.

What is the Purpose of the Arnona Fund?

The purpose of the Arnona Fund is to lower the cost of housing here is Israel. According to the ministry of Finance, the law currently incentivizes local leaders to designate land for commercial use rather than for residential purposes. This is because commercial real estate pays a higher tax rate than residential real estate. Under this plan, wealthy authorities will contribute some of their earnings from any commercial real estate. The committee in charge of the Fund will then distribute the money to other municipalities based on the number of housing units they invest in. This will, in theory, incentivize the local authorities to invest in residential properties rather than commercial real estate. This in turn will add more homes to the market, thus reducing the cost of housing. Finance Minister Bezalel Smotrich says that “this bill creates justice between the municipalities in the center, which are in an attractive location and benefit from infrastructure and in any case constitute the business center of Israel, and the far-off municipalities in the periphery.”


Criticisms and Controversies:

Issue 1: Diversion of Funds and Impact on Local Municipalities:

One of the main criticisms of the Arnona Fund is the potential negative impact on local municipalities. Critics argue that the fund penalizes wealthier communities by diverting a portion of their property tax collections to poorer towns. This diversion of funds raises concerns about the availability of resources for essential services and infrastructure projects in wealthier municipalities. There are fears that this could undermine local autonomy and decision-making processes, as the fund centralizes the allocation of resources. It could also lead to the wealthier municipalities becoming unincentivized to attract more business to increase their commercial property tax as a lot of it would get reallocated to a different municipality.

Issue 2: Inequality and Disparate Impact:

The Arnona Fund has also faced criticism regarding its potential impact on inequality and its treatment of different communities. Exemptions for certain regions, such as West Bank settlements, have raised questions about fairness and equal treatment. Critics argue that these exemptions perpetuate existing inequalities and undermine efforts to address the specific needs of marginalized communities. There are concerns that the fund may not adequately address the housing and development needs of Arab municipalities, further exacerbating disparities.

Issue 3: Democratic Principles and Centralization of Power:

Some critics also connect the Arnona Fund to broader concerns about democratic principles and the concentration of power. They argue that by diverting municipal tax revenues to a centralized resource, the fund diminishes the influence and decision-making power of local governments. This erosion of local autonomy is seen as a threat to democratic values and citizen representation. Critics draw parallels with regimes in other countries, suggesting that the fund represents a consolidation of power by the ruling coalition. One source compares it to the tactics used by the Viktor Orban regime in Hungary.

Issue 4: Flawed Criteria and Financial Burden on Municipalities:

Another point of contention revolves around the criteria used to identify wealthy municipalities and distribute funds. Some critics argue that the criteria as to what labels a municipality as “wealthy” may be flawed or inaccurate, potentially leading to municipalities that fall on the cusp of these criteria having to contribute to more to the Arnona fund than they would be able to. Additionally, opponents have expressed concerns about the financial burden imposed on local authorities. The fear is that municipalities may be forced to raise residential taxes or reduce essential services to compensate for the diverted funds, which could have a negative impact on residents’ quality of life.

Issue 5: Opposition and Strikes

In addition to criticism of the Arnona Fund itself, it has also been one of the issues being protested and rioted in various cities across the country. Opposition to the Arnona Fund has led to strikes and protests by various municipalities during May of 2023. Some of these cities include Tel Aviv, Holon, Ramat Gan, Rishon LeZion, Haifa, Herzliya, Ashdod, and Eilat. These strikes shut down schools and garbage collection in order to protest this bill. Major cities have expressed concerns about the negative impact on their communities and have raised objections to the fund’s implementation. The strikes highlight the depth of opposition and the significance of the controversies surrounding the Arnona Fund.


Overall, the proposed Arnona Fund has sparked an intense debate between its supporters and its critics with valid arguments on both sides. While the fund aims to lower housing costs and incentivize investment in residential real estate, opponents have argued that it punishes wealthier municipalities, perpetuates inequalities, diminishes local autonomy, and implements a financial burden onto local authorities.

The protests and strikes by municipalities across the country highlight the depth of opposition and the significance of the controversies surrounding the Arnona Fund. Moving forward, it is crucial for policymakers to address these concerns and engage in open dialogue to find a balanced solution that promotes affordable housing while preserving local autonomy and democratic principles. By considering alternative approaches and conducting comprehensive impact assessments, policymakers can work towards a more equitable and sustainable solution that addresses the housing needs of all communities.


Ethan Levy: LinkedIn