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Making mortgage interest payments tax deductible would save families NIS 480 per month on average, a model presented yesterday by the Association of Contractors and Builders in Israel demonstrated. The estimated cost to the state would be NIS 610 million annually. Yossi Gordon, the association's director general, presented the model in a meeting with MK Gilad Erdan (Likud), who heads a lobby to promote housing construction. Gordon argued the cost would be more than offset by purchase tax revenue because the tax break would create more demand by home buyers.

The model is based on a two-income household with no children earning about NIS 180,000 per year and taking out a 20-year mortgage on a NIS 900,000 home. It also assumes the couple could fully write off the interest.

Erdan has submitted a bill that would allow tax deductions on interest paid for mortgages up to NIS 800,000. He believes this move would spur home purchases particularly in outlying areas and thus strategically shore up the Jewish population in the Negev and Galilee. Young couples find it hard to buy a home after completing army service, he said, and the state needs to give them incentives to build homes and raise families in the country and help them overcome housing obstacles. He has asked the Finance Ministry to run a pilot program in national priority areas to prove the bill's advantages.

The association's president, Nisim Bublil, said yesterday Israelis need to work 8.3 years on average to buy a home in contrast to 6.7 years for the average person in Europe and the United States. He said the tax burden makes it increasingly harder to buy a home here, and that there is no mechanism for deducting mortgage interest from taxes as is possible in most developed nations.