Tel Aviv’s subway tax sets dangerous precedent: opinion

‘How do you make a small fortune in Israel? Come with great fortune. “In the roughly 40 years since its heyday, the joke has all but been forgotten. Capitalism and an open market have brought phenomenal wealth creation. However, the joke is dusting off and ready to go. a comeback.

Half of the cost of the Tel Aviv subway system will be financed by a tax on property owners located 800 meters from a station. An invoice that goes through the Knesset orders them to pay 75% of the increase in the value of their property. (See Globes: “Knesset Decides Local Owners Will Help Finance Metro,” October 18). The government’s justification is the generous construction and improvement rights to be awarded near the metro lines.

The unique nature of the tax is that it does not apply to income or realized capital gains, but to unrealized capital gains. A person pays taxes not for the money received, but because the paper value of their assets has increased.

Even in the United States, Democrats have only discussed, but not introduced, a billionaires tax on unrealized assets to help fund trillions of dollars in new spending. Opponents of the tax say it will hurt economic growth. It will be a disincentive for people to accumulate wealth when they have to hand over cash based on the paper value of their assets before they have money in their hands.

There is also a fundamental difference between the proposed billionaires tax and the bill that passes through the Knesset. Proponents of the billionaire tax point out that the people it is targeting have huge fortunes in stocks, which are very liquid. By contrast, the metro tax targets property, an illiquid asset. And the billionaires tax, if it ever occurs, will target the unrealized assets of those with massive wealth, unlike the subway tax, which goes against normal workers.

Tel Aviv light rail car (credit: WIKIMEDIA COMMONS / YNHOCKEY)

Property owners affected by the subway tax will have to take hundreds of thousands of shekels from their savings or pension funds. If those are not options, they will have to borrow the money and pay interest on the loan or sell their property. The latter will mean getting away from their friends and communities in which they may have lived for several decades.

The tax is brutally unfair. Increases in the value of a property are already taxed by higher local property taxes and higher capital gains when the property is sold.

Many residents will never use the subway, be it because of age, disability, comfort, or lifestyle, but they will have to pay the bill. Those who will benefit the most will be from out of town, coming for shopping, business, medical appointments and for pleasure. All they will have to pay is the fee, possibly covered anyway by an existing travel pass.

Apartments that are less than 800 meters from a station will be affected by the tax, while neighboring units abroad will be completely exempt. Presumably the tax will be applied immediately or staggered over many years, although the metro won’t be ready for a decade. During this time, there will be massive disruptions, dirt, construction sites, traffic, and noise.

Local authorities, who will determine how much property values ​​will increase, are obviously biased as they have a vested interest in raising as much money as possible. Market value is the only true metric. The 75% rate is ridiculously high compared to the tax rates of the Western world. And there is nothing stopping the government from changing the rate, or even the 800 meter rule when the project inevitably goes over budget and on time.

It is also conceivable that since people sell to avoid the tax, they have to do so at a large discount. Sellers could flood the market and the tax would put off potential buyers, especially since they can’t know what their final exposure will be.

The London and New York subways, both built in the late 19th century, were initially financed by private companies. Each had a viable business model. If the government thinks the metro cannot be financed from projected train ticket revenues and other indirect tax revenues due to increased commercial activity, it puts a serious question mark on the entire project.

However, the most important problem is that once a tax on unrealized income is introduced, no one with assets will be safe. This applies whether those assets are private property, stocks, or businesses. There will be nothing to stop a finance minister from promoting himself as a modern Robin Hood and introducing unrealized capital gains taxes anywhere and everywhere to fund budget deficits or projects that will never pay for themselves. .

Tel Aviv residents can appeal to the Supreme Court, which struck down the third apartment tax. The tax had ordered people with three or more properties to pay NIS 1,500 per month for each, regardless of income level, in addition to other taxes.

In personal relationships, trust is essential. Destroy trust and the relationship disappears. Likewise, if confidence in the tax system and the government is eroded by new, novel and unpredictable taxes, and taxes on unrealized profits, the consequences for Israel could be catastrophic. People will not have security about their financial future. Aliyah will suffer, investment will be reduced, and people’s ideas and inventions will be carried elsewhere.

The fact that the Tel Aviv subway tax is being pushed through the Knesset without any real public debate or opposition is a serious warning sign of what could happen in the future.

The writer made aliyah in 2009 from London. He is a software developer and lives in Ramat Beit Shemesh.

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