Knesset legal adviser calls Lapid’s 0% VAT bill unconstitutional as it passes first reading

Opposition MKs call on minister to reconsider "discriminating" housing benefit.

Lapid at Yesh Atid faction meeting 370 (photo credit: Marc Israel Sellem/The Jerusalem Post)
Lapid at Yesh Atid faction meeting 370
(photo credit: Marc Israel Sellem/The Jerusalem Post)
Finance Minister Yair Lapid’s much-criticized plan to exempt some first-time home-buyers from paying the 18% value-added tax on their purchase passed its first reading in the Knesset on Monday night, shortly after the Knesset’s legal adviser called it unconstitutional.
Knesset legal adviser Eyal Yinon said that the bill’s stated goals – bringing down the high cost of housing and encouraging service in the military – are both worthy, but objected to the means of fulfilling them. He laid out three primary objections to the law, which can still be amended in committee before being finalized in its second and third (final) readings.
One objection addressed the proposal’s unequal distribution of the benefit among population groups.
Those who have served in the IDF or national service can apply it to homes costing up to NIS 1.6 million and receive a maximum benefit of NIS 244,000, while those who have not served can only apply it to homes costing up to NIS 950,000, with a maximum benefit of NIS 145,000.
Because groups such as Arabs, ultra-Orthodox Jews and disabled people do not generally serve in the military, the Supreme Court could rule that the law discriminates against them.
According to Yinon, the law does not require all government benefits to be equally distributed, but “the determination between the different population groups for the purpose of the benefit is possible if it is based on group differences that are relevant to the essence of the benefit at hand.”
For example, giving single mothers tax benefits in an attempt to ease the plight of single mothers is allowed, while distributing housing benefits on the basis of military service may be illegal.
The fact that the high price of housing is a problem that affects the entire population makes such distinctions less palatable.
Yinon’s second objection is regarding the use of military or national service per se, separate from its implications for population groups.
The Supreme Court had ruled in the past that service could be used for financial benefits if it had some bearing on the recipient’s worthiness or if the benefit was “proportional” to the length and type of service. The court frowned upon making service a prerequisite, he said.
Finally, Yinon raised the subject of the economic merits of the bill, noting that senior economic advisers have come out against it, arguing that it will not fulfill its stated goals.
Earlier on Monday, Bank of Israel Gov. Karnit Flug reiterated her opposition to the law, telling the Knesset Finance Committee that it would be expensive, ineffective, and possibly cause housing prices to rise by spurring more demand.
Much of the benefit would be gobbled up by the contractors selling the apartments instead of the young purchasers the bill intends to help. When the proposal was first announced in March, the Finance Ministry’s chief economist Michael Sarel resigned in protest.
Economic criticisms may pose a legal problem, Yinon argued, because the basic law’s flexibility on distributing benefits unequally depends on creating some greater overall benefit. If professional advisers such as Flug advise that the bill will be ineffective or even counterproductive in battling rising housing prices, Lapid must provide a compelling counterpoint to demonstrate that the policy’s benefits justify the violation of equality.
If the Knesset Finance Committee fails to address the legal shortcomings when it takes it up on Wednesday, Yinon added, the law may be overturned by the Supreme Court.
Introducing the law the Knesset plenum Monday evening, Lapid said that the law would change the equation in the housing market.
“Instead of the state earning billions at the expense [of young couples], the state is ready to spend billions for them. They see this and understand that this time, the state is serious and the prices will really fall,” the Yesh Atid leader said.
Responding to the criticism that the roughly NIS 2.3 billion annual cost to the state would, like other entitlements, be difficult to get rid of further down the line, Lapid said he intended the law to stay on the books for the long term.
Hatnua MK Meir Sheetrit offered Lapid support, saying he should not take economists so seriously. “The economists who see black are not always right. It’s true this doesn’t solve all the problems of housing, but this helps and it’s a good first step.”
Other coalition members offered more middling support.
“It must be said sharply and clearly, this proposal does not solve the problem of housing prices in Israel,” said Likud Beytenu MK Miri Regev, despite saying she was pleased that it had passed.
“In order for housing prices to fall, we cannot continue to speculate on land, and that is one of the central jobs of the housing cabinet.”
Religious parties slammed the law for its exclusion of ultra-Orthodox Jews, while other opposition members slammed Lapid’s refusal to listen to the experts.
“The fact is that the Knesset is about to legislate a governing decree that discriminates against two million citizens and provides only for a specific group that voted for Yesh Atid,” said United Torah Judaism MK Israel Eichler. “This bill is racist against Arabs and anti-Semitic against Jews,” he added.
Labor MK Miki Rosenthal described the policy as a “bribe” to Yesh Atid voters, while his fellow Labor MK Nachman Shai urged Lapid to reconsider.
“It is not a disaster to make mistakes, but the wisdom in mistakes is to retreat from them in time and say ‘I was wrong,’” Shai said.
“The finance minister insists on his mistakes and on ignoring all other opinions.
Every professional in the Finance Ministry opposes this plan, they told him ‘Wait a minute, think of the consequences for the economy.’ He was closed and ignored them,” he said.