New criteria announced Sunday for who will be eligible to receive an exemption from value added tax on new homes drew accusations of racism for strict limits that would most apply to Arabs and ultra-Orthodox Jews.

Finance Minister Yair Lapid’s original plan was to exempt residents who have served in the army or national service from the 18% VAT if they were buying their first apartment, valued at NIS 1.6 million or less.

Attorney General Yehudah Weinstein warned that policy would be illegal if it did systematically excluded entire populations,such as Arabs who do not serve, so Lapid agreed to expand benefit to those who did not serve, but only for apartments up to NIS 600,000 in value.

The benefit will only be applicable to married couples (including common law marriage) with at least one child, single parents, childless married couples with one partner over 35 years of age, or single people over the age of 35.

Adalah, an NGO that promotes Arab Minority Rights in Israel, said the policy ran counter to Supreme Court decisions on discrimination, and ignored the plight of Arabs, who have deeper socio-economic difficulties than Israel’s Jews.

"There is no rational connection between giving the benefit to military veterans only, and its purpose, which is housing assistance for young couples who find it difficult to purchase a home,” Adalah’s director of land and planning unit Souhad Bishara said.

Meretz Chairwoman Zehava Gal-On called on the Knesset Finance Committee on Monday to demand an explanation from Weinstein on the arrangement, which she called illegal and racist.

“Lapid’s program will expand the economic discrimination the Arab population of Israel suffers,” she said. “The plan to give exemptions for apartments up to NIS 600,000 is delusional and harmful - it’s clear there aren’t apartments at that price on the market.”

The plan would be equally unfair to ultra-Orthodox, said UTJ MK Yakov Asher. “The criteria the Finance Ministry announced would not shame an anti-Semitic government. Haredim could maybe buy an apartment at NIS 600,000 on Mars!” he said.

Even Knesset Finance Committee Chairman Nissan Slomiansky, from Housing Minister Uri Ariel’s own Bayit Yehudi party, said that the NIS 600,000 liit excluded most apartments on the market, and called for raising the threshold to NIS 950,000.


The differentiated criteria, Lapid told the Calcalist Small and Medium Business conference in Tel Aviv on Monday, “say in the clearest way: whoever gives more, whoever contributes more, will receive more. We are not prepare to apologize for being Zionists.”

Labor MK Stav Shafir said that the plan would only help the rich. “Show me one discharged soldier who has NIS 1.6 million without the help of his parents savings,” she said, arguing that subsidies and mandates for affordable housing would be cheaper and more effective.

Gal-On also scoffed that the government could solve the crisis more easily if it did not direct money for building beyond the green line, where she said NIs 700 million of budgetary funding had helped construction increased 123% in 2013. “The housing crisis we are all experiencing is the result of clear policy, where the voice is Lapid’s voice and the hands are Uri Ariel and Bayit Yehudi’s hands, policy in which construction only happens in settlements,” she said.

The policy, intended to bring down the soaring costs of housing, which has risen some 80% since 2007, has been widely criticized as a populist and fiscally irresponsible. When the policy was first announced in March, Bank of Israel Governor Karnit Flug noted that it doesn’t get at the real problem in the housing market--a supply shortage of new housing units--while increasing demand.

Finance Ministry Chief Economist Michael Sarel resigned in protest, saying that narrow, temporary tax exemptions had a tendency to expand and become permanent over time due to political pressure. The fact that the criteria have widened in the two months since the policy’s announcement seem to vindicate that position. The original cost was estimated at NIS 2 billion, but the Knesset Finance Committee now estimates it at NIS 3.5 b.

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