Imagine a government that tells you your land is essentially worthless when they need to seize it for public use, yet deems that same land a goldmine when it’s time to send you a tax bill. This is not a hypothetical scenario; it is the current reality brewing within Israel’s proposed Arrangements Law. A revival of a controversial property tax reveals a stark contradiction in how the State of Israel values the “potential” of the Land of Israel—treating it as a fantasy when paying out, but as hard currency when collecting.
The Blueprint of a Fiscal Contradiction
- The Zombie Tax Returns: The State is resurrecting a property tax on vacant and agricultural land, a levy abolished in 2000 due to its inefficiencies and distortions.
- The Valuation Gap: While the tax authority assesses land based on high “market potential,” compensation authorities assess the same land based on low “current usage.”
- Punishing the Helpless: The tax targets landowners who often cannot build due to bureaucratic gridlock, effectively fining them for the state’s own planning failures.
- Revenue over Planning: Despite claims that the tax encourages housing development, officials admit it is primarily a mechanism for income generation.
The Resurrection of a Fiscal “Zombie”
The State of Israel, always innovative in its quest to solve the housing crisis and balance the budget, is reaching back into the archives to revive a dormant fiscal tool: the property tax on vacant land.
On the surface, the logic seems sound and aligned with Zionist development goals. Land is a finite resource in our small country; it cannot be smuggled offshore, and ownership is transparent. The state argues that a 1.5% annual tax on market value will prod landowners to stop “hoarding” empty plots, thereby increasing the housing supply. However, this move is not merely a nudge to build—it is a aggressive fiscal maneuver that ignores the complex reality of Israeli real estate development.
Is “Potential” a Dream or a Taxable Reality?
Here lies the core of the legal absurdity. For years, the State and the Supreme Court have maintained a rigid stance regarding land expropriation and damages: you do not pay for dreams.
When the state damages a citizen’s land through planning changes or seizure, the compensation is ruthlessly minimal. The courts have ruled that “potential value”—what the land could be worth if rezoned—is speculative. Unless a plan has been fully deposited with a high probability of approval, the state pays out based on “agricultural value” or “usage value.” These are often fixed, low rates that ignore the actual market price the owner paid. Yet, under the new tax proposal, that same “speculative” market value suddenly becomes the baseline for taxation. The state effectively says: Your dreams are worthless when we owe you money, but fully taxable when you owe us.
The Trap of Bureaucratic Gridlock
One might argue that a tax is necessary to force development, but what happens when the landowner is willing to build but the state is not ready?
This tax does not distinguish between a speculator sitting on the fence and a landowner stuck in the mud. The levy applies to agricultural land and vacant plots that are often undevelopable due to a lack of infrastructure, roads, or sewage systems—factors entirely under the state’s control. In many cases, these lands are tied up in sluggish statutory planning processes that take decades. By taxing these owners, the state is not incentivizing construction; it is imposing a penalty on citizens for the government’s own planning lethargy.
Searching for Coins Under the Streetlight
History offers a cautionary tale that the Ministry of Finance seems to have forgotten. Israel abolished this specific property tax in the year 2000 precisely because it was unworkable.
The previous iteration of the tax was riddled with exceptions, valuation difficulties, and gross unfairness toward landowners who had no ability to influence the status of their property. Bringing it back now, simply because technology makes collection easier, is akin to the old joke of searching for a lost coin under the streetlight just because the light is better there. It targets real estate not because it is just, but because it is an easy target for collection. True equity would demand that if the state wishes to tax “potential,” it must also be willing to compensate for it.
| Scenario | Valuation Method | The State’s Logic | The Consequence for the Citizen |
|---|---|---|---|
| Expropriation / Damages | Current Use Value (e.g., Agricultural) | “Potential is speculative. We don’t pay for dreams or future expectations.” | Owner receives a pittance, far below the market price they may have paid. |
| Proposed Property Tax | Market Value (Includes Potential) | “The market prices in the potential, so we should tax it to encourage building.” | Owner pays high taxes on “dreams” they cannot currently realize. |
Landowner Survival Guide
- Verify Your Zoning Status: Immediately check if your land is classified as agricultural or if there is a deposited plan (TABA) that changes its designation.
- Document Statutory Roadblocks: Keep a detailed record of all infrastructure failures (lack of roads, sewage) that prevent you from building, as this acts as proof against “hoarding” accusations.
- Challenge the Assessment: If the state demands tax based on market value, consult legal counsel to compare it against recent compensation rates in the area to highlight the discrepancy.
Glossary
- Arrangements Law: A government bill presented annually alongside the state budget, often used to pass wide-ranging economic reforms and legislative amendments quickly.
- Expropriation (Hafka’a): The action by the state or a municipality to seize private property for public use, theoretically in exchange for compensation.
- Market Value: The price a willing buyer would pay a willing seller in an open market, which includes the “potential” for future development.
- Use Value: The value of the land based solely on its current permitted use (e.g., farming), ignoring any future development potential.
Methodology
This article is based on an analysis of the proposed Israeli Arrangements Law and a legal critique by Adv. Zvi Shoov, a prominent expert in real estate, planning, and zoning law. The reporting contrasts the proposed tax regulations with established legal precedents regarding land compensation (specifically Supreme Court rulings on Section 197 claims) to highlight policy inconsistencies.
FAQ
Q: Why was this tax abolished in 2000 if the state wants it back now?
A: It was abolished because it created severe distortions in the market and was difficult to administer fairly. It frequently punished people who couldn’t build due to circumstances beyond their control. The state is bringing it back now primarily to generate revenue and ostensibly to pressure landowners to release land for housing, though the structural problems that led to its cancellation remain.
Q: Does this tax apply to all empty land?
A: The proposal targets vacant land, including agricultural land that has potential for development. The critical issue is that it applies even if the development is stalled due to government bureaucracy, not just owner inaction.
Q: Is this the only tax where the state uses “Market Value”?
A: No. In Purchase Tax (Mas Rechisha) and Appreciation Tax (Mas Shevach), the state generally uses the market value (transaction price). However, the specific injustice highlighted here is the inconsistency between the new annual property tax (using market value) and the compensation mechanisms (using low agricultural value).
Wrap-up
The State of Israel must decide what “potential” is worth. It cannot logically or morally hold the stick at both ends—devaluing land when it must pay the citizen, and inflating its value when the citizen must pay the state. For the sake of fairness and the continued development of the country, tax policy should align with planning reality, not just fiscal convenience.
Final Summary
- Hypocrisy Unveiled: The state minimizes land value for compensation but maximizes it for taxation.
- No Way Out: Landowners are taxed for “potential” even when infrastructure gaps make building impossible.
- History Repeats: The tax was previously failed and canceled; reviving it ignores past lessons.
- Revenue First: The move is exposed as a collection strategy rather than a genuine planning solution.
Why we care: Land ownership and development are the backbone of the Zionist enterprise. Ensuring fair, consistent, and logical regulation is essential for maintaining trust between the Israeli citizen and the State, and for genuinely solving the housing crisis rather than just profiting from it.
