Military service may remain a consideration for housing VAT exemption

Despite AG's warning that service requirement is discriminatory, finance minister says ultra-Orthodox can take full advantage of benefit by enlisting.

Finance Minister Yair Lapid 370 (photo credit: REUTERS)
Finance Minister Yair Lapid 370
(photo credit: REUTERS)
Finance Minister Yair Lapid may not have to entirely scrap his divisive condition that only those who have served in the army or national service will be eligible for the exemption of the 18 percent value-added tax on new home purchases.
In a meeting earlier this week, Attorney-General Yehuda Weinstein told Lapid that keeping the service requirement as a requirement would not be legal, as it discriminates against portions of the population. It would be possible for service to remain among the considerations for receiving the benefit, so long as it was not a litmus test.
The original estimated cost for the exemption was NIS 2 billion a year, but that estimate excluded those who have not served and childless couples. The Finance Ministry did not provide an updated figure to what the expanded exemption would cost.
One of the chief criticisms raised by the Bank of Israel, the Finance Ministry professional staff and the ministry’s chief economist – who resigned in protest over the policy – was that populist tax benefits tend to expand and become more expensive over time, and are difficult to cancel.
In a Wednesday speech, Lapid showed no indication that he was backing off the criteria entirely, and said that ultra-Orthodox Jews could take full advantage of the benefit by enlisting.
“To anyone who asks me if this is discrimination, I want to say that military or civil service to this nation is a value. If we have to, we will go to the Supreme Court to protect our chain of values, because the time has come to stop being afraid of fighting for our values,” he said.
He also shot back against his technocratic critics, saying that “lowering the VAT was not aimed at economists, politicians or special interests, it was aimed at the youth of the middle class who served in the army and are trying to establish a family.”
In another indication of changes that may be incorporated into the final criteria, which must be laid out for legislation by April 8 (45 days after the Housing Cabinet’s Monday approval of the reduction), Lapid added, “It doesn’t matter what kind [of family]: LGBT, single parents, everyone deserves the same rights.”
Lapid derided economists and their “Excel sheets” for failing to bring down the heady price of housing.
He went on to explain that he had waited this long into his tenure to introduce the VAT exemption because he felt it was important to make sure that the supply of housing started to catch up with the market first.
The central recommendation of the Bank of Israel has been to increase housing supply by reducing barriers to construction and marketing.
In an apparent return to the credit-grabbing duel that characterized the roll-out of the new housing policies last week, Construction and Housing Minister Uri Ariel, who ultimately supported Lapid’s policy, talked up his own contribution to the price reduction package: price targeting.
Unlike the VAT policy, which required new legislation, his idea of forcing developers to bid down the cost of apartments they intend to build on government land before they can buy it could begin sooner. The plan, which both the Bank of Israel and Prime Minister Binyamin Netanyahu embraced, would be ready to go by the end of April, he promised.
Meanwhile, new data released by the Finance Ministry showed that home purchases reached their highest level in a decade in the last quarter of 2013, at 32,000 purchases. The greatest number of purchases took place in the country’s central region, while Jerusalem saw a milder increase, a result of a special grant program that has since expired.
Despite increasing Bank of Israel restrictions intended to dissuade investors from purchasing more property, investors led the pack of new home purchases, with an increase of 40% in transactions over the previous quarter – 60% of which were in Jerusalem – compared to 27% of young couple purchases.
“The price levels of new apartments that investors and young couples purchased in [the central region] are similar, indicating that they are ‘competing’ over the same apartments,” the ministry’s report said.
The overall increase in purchases was 29% over the previous quarter, but that figure may fall in the current quarter. Analysts believe that as long as the promise of a VAT exemption is in the air, potential buyers will put off their purchases in hope of a discount when the law goes through.