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Cabinet approves first-time home-buyer VAT exemption
By NIV ELIS
22/06/2014
The law has been criticized for failing to address the central problem in the booming cost of housing: a lack of supply of new housing units.
 
Finance Minister Yair Lapid’s controversial bill to exempt some first-time home-buyers from paying the 18 percent value-added tax flew through the cabinet with unanimous approval on Sunday.

Economists, governmental advisers, and members of the real estate industry have criticized the proposal as an ineffective, populist step. The Finance Ministry’s chief economist resigned in protest when Lapid first announced the plan.

The bill must still go through several stages, including passage by the Knesset Finance Committee, before the Knesset can vote it into law by the target date of September 1.

The Finance Ministry estimates that the plan will cost NIS 2.4 billion a year, up 20 percent from the original NIS 2 billion estimate.

Most recently, the ministry increased the maximum cost of apartments available for people who have not served in the IDF or national service from NIS 600,000 – which was expected to exclude most apartments – to NIS 950,000.

That increase added NIS 200 million to the cost of the program, according to Finance Ministry figures.

IDF veterans and national service alumni, on the other hand, can receive the benefit for apartments that cost up to NIS 1.6 million.

The difference in benefits has stirred warnings that the Supreme Court may strike down at least a portion of the law as discriminatory, because it excludes most Arabs and ultra-Orthodox Jews.

“This bill will cause harm to the housing market and blatant discrimination against large parts of the Israeli public,” MK Zehava Gal-On (Meretz) said on Sunday. IDF veterans should be compensated with better pay throughout their service instead of through access to benefits later, she argued.

The law has also been criticized for failing to address the central problem in the booming cost of housing: a lack of supply of new housing units coming onto the market.

Giving an extra tax break to some people, economists have argued, will simply spur demand, already booming because of low interest rates.

An increased rush to buy could lead to an overall increase in the price of housing, which has already nearly doubled since 2007.

“The effectiveness of this bill for bringing down housing prices will be small to non-existent, and it will essentially lead to a huge expenditure, for no reason, at the expense of other needs,” Gal-On said.
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