Inequality in Central Government Transfers to Municipalities, 1991-2012

In this bi-annual report on inequality in central government transfers to local authorities the figures are for 2012, the most recent year for which the Ministry of the Interior and the Central Bureau of Statistics published complete data. We also examined the figures for the years between 1991 and 2012. Inequality was measured per capita.

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The report compares four different kinds of localities: The Forum of 15 (relatively affluent localities with balanced budgets), Jewish development towns, Arab localities, and Jewish settlements in the Palestinian territories and in the Golan Heights (for short, “the settlements”). The report also differentiates between the three Haredi settlements – Betar Ilit, Modiin and Emanuel – and the other Jewish settlements in the Palestinian territories.

Over the last two decades, the population of Israel has grown by sixty percent. The greatest rate of growth – 240 percent, was registered in the settlements, where most of growth actually took place in the three Haredi settlements, whose growth rate amounted to 376 percent, while the rest of the settlements grew by 80 percent – closer to the overall average.

1. Central Government Subsidies of Municipal Budgets:

The central government contributes to municipal budgets in two different ways. One is through Service Grants for state services provided by municipalities, the two main services being education and social welfare services; and the second is for Balance Grants.

A.Service Grants: Between 1991 and 2012, the highest service grants, per capita, were registered in the settlements. In 2012 the amount was NIS 2,695 per capita, on average, in comparison with NIS 2,277 in Arab localities, NIS 1,892 in Jewish development towns and NIS 1,684 in “”Forum of 15” localities. Disaggregation of the Haredi and non-Haredi settlements revealed that the non-Haredi settlements received per capita service grants that were 2.4 times greater than those received by the Haredi settlements: NIS 3,213, compared with NIS 1,359 per capita. The main reason for the difference is the fact that in Haredi settlements, the service grants of the central government, a good part of which is for education services, are not transferred to the municipality but rather sent directly to two large Haredi school networks, the “Independent” network belonging to the Agudat Yisrael political party and the “Maayan HaTorah Education” network belonging to the Shas party. Another reason: Haredi schools that do not belong to either of the two networks are classified as “Recognized Education that is not Official,” and as such are entitled to lower subsidies – of between 55% and 75% of the regular subsidy – which decreases the size of the dedicated transfer.

B. Balance grants are made to decrease the accumulated deficit of low-income local authorities. Local authorities belonging to the “Forum of 15” do not receive such grants. During the second intifadah (2001-2003) central government balance grants were slashed, to the disadvantage of Arab localities, Jewish development towns and settlements. For example, during the 1990s, balance grants to Arab localities increased by some 100 percent, from NIS 746 per capita in 1991 to NIS 1,464 per capita in 2001.The budget cut hit them very hard: in 2012 the average balance grant for Arab localities was NIS 886 per capita, only 20 percent higher than in 1991. Balance grants to Jewish development towns decreased even before the large cuts that followed the second intifadah, but the trend of decreasing subsidies grew even stronger after the intifadah period, and in 2012, the average balance grant for Jewish development towns was NIS 671 per capita. Throughout the period under study, the settlements received the highest average balance grants per capita. The budget cuts of 2001-2003 affected the Haredi settlements more than the non-Haredi ones: in 2012, the average per capita balance grant in the non-Haredi settlements as NIS 1,108 – about 50% more than that of the Haredi settlements – NIS 720.

2. Local Financing

In addition to examining central government transfers to local authorities, we also examined local income (obtained mainly from local taxes and fees) of the local authorities, per capital. When it comes to local income, the situation of the “Forum of 15” localities is the best, with a per capita local income (2012) of NIS 5,401. It is due this high level of income that they have no need for central government balance grants. Jewish development towns have the second highest level of local income, with an average of NIS 3,626 per capita, far behind “Forum of 15” localities. At the bottom of the list are the Arab localities, with an average local income per capita of NIS 1,406. As for the settlements, they have an average per capita local income of NIS 2,690. The local income of non-Haredi settlements is about twice as high as that of the Haredi settlements – NIS 3,049 compared with NIS 1,464. Throughout the period of study, the local income per capita of the Haredi settlements was similar to that of the Arab localities. In both cases we are talking about localities lacking independent infrastructure and therefore no tax base and whose residents are characterized by the highest poverty levels in Israel: above 50 percent.

3. The Expenditures of Local Authorities

Along with income, we also examined expenditures. The lowest level of expenditure was registered in Arab localities: in 2012, they expended an average of NIS 4,688 per capita, compared to NIS 6,400 and higher for the other groups of localities. The average per capita outlay in 2012 of the settlements was NIS 6,431. Disaggregation of Haredi and non-Haredi settlements reveals that the average per capita outlay in the Haredi settlements was NIS 3,596, lower than that of the Arab localities, while the average per capita outlay of the non-Haredi settlements was twice as high – NIS 7,416 – and was even higher than that of “Forum of 15” localities.