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Developers protest a planned 75% tax on future property values to help fund metro

Builders say funding proposals for major infrastructure project are unreasonable and unviable; so-called Metro Law advances in legislative committee

A file photo of construction on the Red Line of the Tel Aviv Light Rail as part of the mass transit system for the Tel Aviv metropolitan area, some of which runs underground, September 13, 2021. (Moshe Shai/Flash90)
A file photo of construction on the Red Line of the Tel Aviv Light Rail as part of the mass transit system for the Tel Aviv metropolitan area, some of which runs underground, September 13, 2021. (Moshe Shai/Flash90)

Building industry professionals are protesting a proposed stipulation to the so-called Metro Law that is expected to draw about half the funding for the planned metro system — the most complex infrastructure project in Israel’s history — from the expected future rise of home and land values in locations near stations.

A group of construction companies, developers, and contractors with the Histadrut trade union, led by the Israel Builders Association filed a petition (Hebrew link) with the High Court of Justice earlier this month demanding intervention on a clause imposing a whopping 75% betterment levy on the expected increase in property value for homeowners within 800 meters of more than 100 planned metro stations. The levy, 35% of which will go to the Finance Ministry with another 40% to relevant municipal authorities, is meant to reflect the expected capital gains from the sale or re-development of real estate assets under the proposed mammoth infrastructure project, which is set to deliver urban renewal and key public transport connections across central Israel.

The petitioning group asked the court to move to cancel the tax or reduce it substantially, arguing that the basis for the levy is flawed and penalizes those holding property around planned locations for metro stations, in advance of any construction and despite the uncertainties surrounding the delivery of the metro network.

The Metro Law won wide support and passed its first reading in the last Knesset, but fell victim to politicking in the aftermath of the previous government’s collapse and the decision to call early elections. Funding and planning for the metro system were already passed in the metro law that accompanied the 2021-2022 budget, but did not address numerous bureaucratic and legal problems involved in the construction of the metro.

This week, the new coalition advanced the Metro Law in the Ministerial Committee on Legislation ahead of second and third — final — readings in the Knesset plenum.

If it comes to fruition, it will create the funding and oversight mechanism necessary to embark upon the metro project, slated to cost an estimated NIS 150 billion ($43 billion) overall (though infrastructure projects are known to balloon in costs over the years).

Under the metro plan, some 45 kilometers (28 miles) of track and 31 stations would connect Tel Aviv, Rehovot, Ness Ziona, Lod, Be’er Yaakov, Rishon Lezion, Holon, and Ramat Hasharon, for a line called the M1 South. Another line, M3, would deliver 39 kilometers of track with 25 stations, connecting Bat Yam, Holon, Tel Aviv, Ramat Gan, Petah Tikva and Or Yehuda. There is no expectation that passengers will be able to travel on these lines until 2032 at the earliest.

A further northern section of the proposed network has caused difficulties that would push back connections to Modi’in, Ra’anana, Kfar Saba, and Hod Hasharon until at least 2040.

The rationale behind the proposed metro system is to dramatically reduce the severe road congestion in Israel’s central district and thereby ease the heavy economic costs the gridlock causes.

The complainants said in their petition to the court that the betterment levy forces homeowners, landowners, and entrepreneurs, to finance a flagship, national infrastructure project meant to benefit the general public. They also argued that the tax fails to meet basic Israeli law provisions for human dignity and freedom, and infringes unfairly on people’s rights to own property without essentially paying a “state fine.”

The unprecedented tax rate, they said, will mean that a landowner or apartment owner whose property value will increase by a million shekels (around $293,000) post-construction, will have to pay no less than NIS 750,000 (about $220,000) to authorities.

The group called for alternative financing to be identified for the metro project.

Haim Feiglin, vice president of the Israel Builders Association, said the tax clause was unreasonable and punitive.

“Everyone who currently lives in an old building in the area where a metro station is supposed to be built in Gush Dan, is about to become a hostage to a crazy decision” that is unlikely to result in the construction of the metro network, said Feiglin. “This is a national project and it should be financed through some form of public-private partnership.”

Israel’s new transportation minister, Miri Regev, has expressed her reservations about the project and said that its feasibility and financing require more consideration. The metro plans have also been criticized by experts on grounds of cost and feasibility.

But new Finance Minister Bezalel Smotrich is said to be a strong backer of the project and will promote the metro bill as part of the upcoming economic arrangements law accompanying the state budget.

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