Finance Ministry expects NIS 1b from JNF

JNF

In the 2016 budget, the Ministry of Finance has assumed that it will receive NIS 1 billion in revenue from the Jewish National Fund.

In the budget framework for 2016, the Ministry of Finance has assumed that it will receive NIS 1 billion in revenue from the Jewish National Fund (JNF) - Keren Kayemet Le-Israel, making it the single greatest individual source of revenue for the state in this year, according to the Ministry of Finance forecast. Ministry of Finance sources expressed great optimism to "Globes," saying that the planned amount "was sure to arrive" from JNF, independently of the question of JNF's separation from the state. How does the Ministry of Finance plan to get the money, and are the chances of getting really so good?

An expired agreement

The 1961 covenant between JNF and the state expired on July 29, 2015. Under this covenant, the Israel Land Authority (ILA) markets JNF land without discrimination against Arabs, and gives JNF the proceeds from the sale of the land. The question therefore arises of whether the Ministry of Finance can rely at all on NIS 1 billion from JNF.

JNF, founded in 1901 in order to help Jews settle in the Land of Israel, owns 2.5 million dunam of land (625,000 acres), 1.5 million dunam of which (375,000 acres) was expropriated from Arabs after the state was established. Most of JNF's land is zoned for agriculture, and is located in high-demand areas in Israel. According to ILA figures, JNF owns 22% of all the land in central and northern Israel (JNF owns no land in the Negev).

JNF received an average of NIS 1.17 billion a year from ILA in 2009-2013 for marketing JNF land sold to the public, and has accumulated NIS 4 billion in its treasury. The entire process of rezoning agricultural land for construction means more money for JNF. The Ministry of Finance budget department has traditionally argued that JNF benefits from high land prices as a result of the betterment processes initiated by the state, for example in transportation infrastructure, and should therefore contribute more to the state treasury.

Former Minister of Finance Yair Lapid, who was planning construction of 150,000 rental apartments on rezoned agricultural land, leveraged this claim, and demanded that JNF give the state at least NIS 500 million a year. The dispute became antagonistic, including a threat by Lapid that if JNF refused, he would act to cancel all the exemptions from the Mandatory Tenders Law and land taxes enjoyed by JNF under the law. At the same time, former Minister of Justice Tzipi Livni assailed JNF for lack of transparency and the benefits industry it operates.

JNF chairman Efi Stentzler, who improved JNF's financial situation, visualized his work being destroyed by the demands of the state budget. He responded to these initiatives by notifying the state that JNF was establishing its own independent system for marketing its land without any ILA involvement. This was indeed prepared by JNF official Alex Hefetz, and a shelf plan was readied for sending. At the end of January, on the eve of the Knesset elections, JNF exercised its option to cancel its covenant with the state on six months' notice, and notified the government of this.

Because the planned lots consist of a mixture of ILA and JNF land, this measure is liable to result in chaos and prolonged delays in the planning and marketing of land, which could send housing prices soaring even higher.

At the moment, there is now no bad blood between JNF and the government, as there was previously, but the situation is complicated. Right wing circles in the government and the Knesset, most prominently Minister of Agriculture Uri Ariel, wholeheartedly support separating JNF from the state, for one simple reason: if JNF is no longer connected to the state, the rules of public administration, and the principle of equality, it can argue that according to its article of incorporation, it is entitled to sell land exclusively to Jews. It is easy to imagine what a public and legal storm would ensue in such a scenario.

On the other hand, in the election campaign, Minister of Finance Moshe Kahlon championed the dissolution of monopolies, and stated on every possible occasion that the ILA should be dismantled, and other agencies established for land planning and marketing. Recently, when Kahlon established the national housing headquarters, he realized how complicated and risky this would be in the short and medium term, and is no longer talking about dismantling the ILA.

In all the hullaballoo of the elections and the formation of the government, no one paid attention to JNF's announcement of the termination of its covenant, despite a warning by Attorney General Yehuda Weinstein. As usual, at the last minute, only after the termination had become effective, Kahlon sent Minister of Environmental Protection Avi Gabbay, ex-Ministry of Finance budget department himself, to talk with JNF.

Gabbay proposed and received an extension to August 29 for negotiations with JNF about the termination announcement and JNF's contribution to the state budget. Meanwhile, while the negotiations are taking place, NIS 1 billion in revenue now appears in the state budget that is supposed to come from JNF.

Our guess is that the end result will be an agreement and money for the state: for example, an annual transfer by JNF of 25% of its proceeds from land sales to the state in exchange for preservation of the status quo.

Published by Globes [online], Israel business news - www.globes-online.com - on August 19, 2015

© Copyright of Globes Publisher Itonut (1983) Ltd. 2015

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