New MK Oshrat Gani Gonen Launches Legislative Bid to Abolish Arnona Fund
Newly sworn-in MK Oshrat Gani Gonen has initiated a legislative push to abolish the municipal Arnona Fund, arguing it deepens economic disparities and penalizes efficient local authorities.
Freshly sworn-in Knesset member Oshrat Gani Gonen of the Yashar! party has launched a fierce legislative battle to completely abolish the controversial municipal property tax fund, known as the Arnona Fund, arguing that the mechanism exacerbates socioeconomic disparities and punishes thriving local authorities.
Speaking to the press, Gani Gonen—who previously headed the South Sharon Regional Council and led the planning committee for the regional local government center—asserted that three years of implementation have proven the fund fails to resolve the housing crisis or spur construction. Instead, she claims, it penalizes municipalities that invest in economic development and creates severe administrative burdens.
Origins and Structural Opposition
The Arnona Fund was enacted in 2023 as part of the state economic arrangements law, requiring economically robust municipalities to transfer up to 28% of their annual commercial property tax revenue growth into a central pool. Lower-income authorities contribute smaller percentages. The fund distributes annual grants of 1,850 shekels for every residential housing unit added since 2021, and 1,000 shekels for units added between 2018 and 2020. Financial transfers began in 2024.
The legislation initially triggered massive upheaval across Israel, including nationwide strikes by local government leaders and fierce opposition. Critics argued the fund infringed upon municipal autonomy and unfairly punished cities that had successfully developed commercial business parks. Conversely, Finance Minister Bezalel Smotrich staunchly defended the initiative, maintaining it was vital for reducing housing costs and accusing local leaders of waging war against affordability efforts. Numerous legal challenges filed against the legislation were ultimately dismissed by the High Court of Justice, which upheld the legality of the fund.
Economic Distortion and Growing Imbalances
According to Gani Gonen, the fund creates a profound economic distortion by penalizing efficient management. She argues that the mechanism siphons funds from authorities that foster local commerce and improve collection efficiency, redirecting those resources to areas already enjoying high commercial housing demand. This approach, she contends, rewards external market forces rather than municipal efforts.
Furthermore, critics note that distribution mechanisms based on building permits steer the vast majority of budgets toward high-demand localities such as Tel Aviv and Bnei Brak, while developing peripheral regions lag behind due to objective planning bottlenecks. Ministry of the Interior data for 2025 illustrates this complex dynamic. For instance, Tel Aviv is projected to receive nearly 30 million shekels from the fund for 2025, alongside roughly 21 million shekels for 2024, despite initial treasury forecasts predicting heavy losses.
«Following three years of implementation, the conclusion is clear: the Arnona Fund law must be completely abolished rather than patched up. The mechanism rewards outcomes rather than effort, penalizing growing authorities while failing to solve the national housing crisis.»
Other major cities show varied financial outcomes. Jerusalem is expected to receive about 18 million shekels, Beit Shemat around 11.3 million, and Bat Yam approximately 10.7 million. Conversely, Haifa is required to transfer some 10 million shekels into the fund—the highest contribution among major cities—followed by Petah Tikva at roughly 4.6 million. While these sums remain relatively marginal compared to municipal budgets scaling into billions of shekels, analysts project the cumulative figures will expand significantly in the coming years.
