Yesterday evening, the Knesset plenum gave a first reading to the bill implementing the Minister of Finance Yair Lapid's zero-VAT program for first-time homebuyers. 31 members of Knesset supported the bill, 18 voted against it, and one abstained.
The bill is likely to encounter problems, however, on the constitutional front. Knesset legal counsel Eyal Yinon circulated an opinion to this effect yesterday, and recommends that the Finance Committee should introduce changes to the bill before the second and third readings. Yinon finds that the gap between the benefits offered to those who have served in the IDF or who have done civilian public service, and those who have done neither, could be seen as disproportionate. "Considering that the proposed benefit is awarded even to someone who has served only 21 months in military or civilian service, the difference between those who have served and those who have not could reach more than NIS 9,444 for each month of service, which is considerably more than the normal monthly wage for workers between the ages of 21 and 29," Yinon writes.
Yinon also finds that, because of the way that the scheme is structured, those who can afford to spend more on a home receive a disproportionately higher discount, and that those who have done military or civilian service but do not have the capital to invest in a home at all receive no assistance. "On the other hand," he writes, "people who have served and who come from well-off families could even buy a home for investment purposes paying VAT of 4% (and then buy an additional, more expensive home for residential purposes), since there is no requirement that the 'beneficiary' buyer should dwell in the home, but only that they should not sell it for three years."
In presenting the bill to the Knesset, Lapid said, "I wish to stress that, in principle, I oppose differential VAT, but the real estate market is not a normal market, and the normal rules do not apply to it. The government of Israel is the owner of 93% of the land in the country. What recent governments have done is essentially to sell citizens a certain product, land, at an extortionate price, and then collect an additional tax on the product they themselves sold. This is not moral, not efficient, and it has deprived an entire generation of the option of attaining their own homes.
"The zero-VAT bill that we are bringing before the Knesset today is not a bill that stands by itself, but is part of a general plan by the housing cabinet, the aim of which is to raise the supply of homes, to provide relief for renters, and to reduce prices."
Published by Globes [online], Israel business news - www.globes-online.com - on July 8, 2014
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