MKs flout gov't with mortgage-tax bill - Haaretz

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Fri., February 01, 2008 Shvat 25, 5768

Israel Time: 03:05 (EST+7)

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MKs flout gov't with mortgage-tax bill

By Zvi Zrahiya

Tags: taxation, israel, home loans

Buyers of relatively low-cost housing will be eligible for a tax break if two bills now wending its way through the House overcome the last hurdles. The two bills, which however contravene explicit government policy, recognize interest payments on mortgages for tax purposes - as long as the apartment costs less than NIS 800,000 and the mortgage amounts to no more than 80% of the apartment's value.

The two legislative proposals also provide possibilities for buyers of apartments who don't earn enough to pay income tax, in a manner roughly similar to negative income tax.

The two bills yesterday passed their first of three readings into law. Thirty-nine MKs voted in favor and 29 objected to the "rainbow bill" tabled by MKs Gilad Erdan (Likud), who was joined by Shelly Yachimovich (Labor). The second bill had been submitted by Zevulun Orlev (National Religious Party) and won by 34-31.

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Six coalition MKs supported the bills despite the clash with government policy: Kadima's Yoel Hasson, and a batch from Labor: Ophir Pines-Paz, Yachimovich, Michael Melchior, Nadia Hilu and Danny Yatom. The "young guard" of the Labor party, led by Eran Hermon, lobbied hard among the Laborites to persuade them to buck policy and support the law. Also, Dafna Cohen of the lobbying firm Cohen-Rimon-Cohen, working on behalf of the Association of Contractors and Builders in Israel, played a key role in gaining support for the proposals.

The Labor Party allowed its Knesset members to vote at their own discretion. But it ordered its ministers, Yuli Tamir, Isaac Herzog and Shalom Simhon, to stick to the party line and vote against the bills.

Finance Minister Roni Bar-On, who opposed the bill, spoke vehemently against the concept, calling the bills "destructive legislative proposals" that would breach the dam. In his view, the relief will roll over straight from straitened home-buyers to the banks and builders: ocne they realize that it isn't the little man footing the bill, they'll raise interest rates, and the contractors for their part will increase prices.

Acting coalition chairman Yoel Hasson commented on the other hand that the general direction of recognizing interest paymetns on mortgages for tax purposes is socially and economically correct. If anything he urges broadening the eligibility, making the breaks apply to homes worth up to a million shekels.

"The bill constitutes a revolution in the area of home-buying, and will significantly better the lot of young couples, new immigrants and the middle class, making it easier for them reach their own home," stated Erdan, one of the bill's fathers. "The law will reduce the number of households who can't make their mortgage payments, and will encourage people to work and not evade their taxes," he added.

Yachimovich also argued in favor of helping middle-class young couples to buy their first home. She noted that the proposal does not neglect couples who earn to little to pay any tax at all: these will receive a grant towards their home, she pointed out.

Yossi Gordon, the head of the Association of Contractors and Builders in Israel, commented that most western countries have some sort of mechanism to recognize interest payments on mortgages for tax purposes, in order to encourage people to own their own homes. He argued that helping young couples buy their first home will strengthen their ties with the home-land. Gordon added that the association estimates the law, if enacted, would save such couples about NIS 500 a month.

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