The municipality of Nazareth, the second largest Arab city in Israel, was recently forced to take a loan in order to pay teachers’ salaries. Sources familiar with the details explained that the municipality, like other Arab local authorities, found itself in cash-flow difficulties largely because of the refusal by Minister of Finance Bezalel Smotrich to transfer budgets that had been promised to it.
In the past few months, Smotrich has frozen about NIS 300 million earmarked for Arab local authorities from the budget for grants for development and making up financial shortfalls in local government, and he is blocking a further sum of nearly NIS 3 billion earmarked for the five-year plan for East Jerusalem. Smotrich’s argument is that the money is liable to fall into the hands of organized crime syndicates.
This week, Smotrich announced the formation of a new team to deal with financial crime, particularly among the Arab population.
Former Ministry of Finance director general Ram Belinkov, who resigned from the post in January this year, referred in a post on his Facebook page critical of Smotrich’s decisions to a comprehensive report prepared by the ministry under the previous government. "Minister of Finance, read that report. Many months of work. Tens of hours of many departments at the Ministry of Finance, the Bank of Israel, the Israel Police, the Ministry of Welfare, the National Economic Council, the Ministry of National Security, and others. Simply implement it, instead of hoodwinking us," Belinkov wrote, and attached a link to the report, which was published in May last year.
In the report, mechanisms were proposed for transferring budgets for development in Arab local authorities directly to executive arms of the state, or through other public bodies, in order to prevent criminal elements from "winning" local authority tenders.
Minister of the Interior Moshe Arbel (Shas) believes that holding back the budgets will not in the long run save the state any money, since the local authorities will incur deficits that central government will have to cover. In practice, the picture is a little more complicated.
The normal procedure when a local authority is on the brink of insolvency is to appoint a financial controller on behalf of the state to oversee the authority’s affairs. After that, in what is generally a long and complicated procedure, additional financial support may be made available to the authority concerned, sometimes subject to a streamlining program.
In principle, the state supports the local authorities (other than those that are financially strong enough) through balancing grants from the Ministry of the Interior. Sources close to Smotrich said in response to Arbel’s claim: "The instance of the NIS 200 million is one of coalition money that has no professional justification." The argument is that this is money allocated to the Ra’am (United Arab List) party in the formation of the previous government.
The NIS 200 million item is in a grey area from a legal point of view, since coalition agreements are not legally binding, but the matter is subject to legal interpretation.
As far as balancing grants are concerned, these are meant to be transferred uniformly to all local authorities that receive budget support. Apparent discrimination between Jewish and Arab local authorities would be legally problematic. At any rate, sources in the Arab local authorities say that the matter will eventually reach the High Court of Justice.
In 2006, the court intervened in a government decision that classified areas as being of national priority, and ruled that the decision discriminated against Arab school pupils.
In 2012, the court halted a tax benefits mechanism that also led to inequality, on the grounds that the criteria for giving tax benefits in certain places and not in others were unclear.
Published by Globes, Israel business news - en.globes.co.il - on August 9, 2023.
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