How Netanyahu’s Biggest Political Rival Ended Up as a Key Witness Against Him

Yair Lapid has been branded a ‘lousy snitch’ after telling police he was pressured to amend a law that would benefit wealthy expats such as Arnon Milchan

File photo: Yair Lapid
Tomer Appelbaum

The biggest surprise to emerge from the police report on Tuesday recommending that Prime Minister Benjamin Netanyahu be indicted for bribery was arguably that his political nemesis testified against him in one of the cases.

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MK Yair Lapid, who heads the centrist Yesh Atid party, is also expected to serve as a key witness as the case undergoes further investigation by state prosecutors, police said.

Then-Finance Minister Yair Lapid with Prime Minister Benjamin Netanyahu during a cabinet meeting in October 2014.
מרק ישראל סלם

According to the police report, Lapid – in his former position as finance minister in Netanyahu’s 2013-2014 government – had been asked by the prime minister to promote legislation that would extend tax benefits to expats living abroad who wanted to move back to Israel.

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Lapid was questioned by police as part of the investigation into what is known as Case 1000, which involves allegations that Netanyahu accepted lavish gifts from billionaire Arnon Milchan (and also Australian billionaire James Packer) in exchange for favors he performed for the Israeli-born Hollywood producer. One such alleged favor was lobbying the Finance Ministry on Milchan’s behalf, to extend tax benefits to Israeli expats returning home.

Under the existing law, passed in 2008, expats who move back to Israel pay no taxes at all on their capital earnings from overseas investments for a period of 10 years. Nor are they required to submit any reports to the Israel Tax Authority on these earnings.

Yair Lapid, right, with singer Einat Sarouf and Hollywood producer Arnon Milchan at an Israeli nightclub in 2004.
Moti Kimche

The law has been dubbed the Milchan law because it was designed to benefit wealthy individuals who have major investments outside of Israel. Milchan has been able to take advantage of the law since he moved his base back to Israel in 2009.

In a follow-up Facebook post on Tuesday – his first response to the police recommendations – Lapid provided further details. He said Netanyahu had asked to extend the period of tax relief from 10 to 20 years.

Had it been approved, such an extension would have saved Milchan millions of shekels in tax payments – far more than the value of the pink champagne and expensive cigars he regularly provided to the prime minister and his wife, Sara, according to police findings.

In his own initial response to the police recommendations, Netanyahu himself addressed the specific allegation that he had pressured Lapid to amend the law for Milchan’s benefit.

Noting that Lapid was a good friend of Milchan’s, Netanyahu said the original law had been handled by the Finance Ministry while Lapid was in office. However, these dates don’t check out, since the original law was passed in 2008 and Lapid only started serving as finance minister in 2013.

Netanyahu said the law was meant to promote investments from abroad but added, “I have never operated on behalf of Milchan, not in this manner or any other.”

Originally conceived in the Immigrant Absorption Ministry, the purpose of the Milchan law was to entice Israelis living abroad to move back home. The Organization for Economic Cooperation and Development has fiercely criticized it, saying it turns Israel into a tax haven. But all attempts by treasury officials to amend or repeal it in recent years have failed.

Finance Ministry officials told police they were determined to block Netanyahu’s attempt to increase the period of tax relief, on the grounds that it “goes against the public interest because it will reduce the amount of tax revenues in the state coffers.” Ministry officials described the proposed amendment as “disproportionate, illogical and inequitable.”

News that Lapid had testified against Netanyahu sparked outrage among the prime minister’s supporters, who accused the opposition leader of an attempted coup. From the Knesset podium, coalition whip David Amsalem described Lapid as a “lousy snitch.”

“Have you no shame?” he asked.

Culture and Sports Minister Miri Regev, meanwhile, called Lapid a “failed politician” who had joined forces with those determined to overthrow the prime minister.

Yesh Atid currently has 11 parliamentary seats, trailing behind the Zionist Union, which is the largest opposition party with 24 seats. However, recent polls have shown that if a Knesset election were held today, Yesh Atid would gain as many seats as Netanyahu’s ruling Likud party – if not more – posing a far greater threat to him than the Zionist Union, which includes the Labor Party. Labor has traditionally been the leading party in the center-left bloc.

In his Facebook post on Tuesday, Lapid said the police had requested testimony from him about his tenure in the Finance Ministry. “Like any law-abiding citizen in the State of Israel,” he wrote, “I provided them with brief testimony pertaining to the attempt to extend the ‘Milchan law’ to 20 years.

“I would stress,” he added, “that despite all the pressure, I refused to pass the law.”

Even though Netanyahu is not required to resign by law, Lapid said, with such severe charges hanging over his head – most of which have not been denied – “he cannot continue to serve as the prime minister responsible for the peace and security of the citizens of Israel.”

Before launching his political career in 2013, Lapid worked as a newspaper columnist and television talk show host. He spent several years writing for the Israeli newspaper Maariv, before moving to what was then its main competitor, Yedioth Ahronoth.

Police have recommended that Netanyahu be indicted for bribery in a second case that involves his relationship with the publisher of that daily, Arnon Moses. Case 2000, as it is known, centers on allegations that Netanyahu promised to help curtail the circulation of Mozes’ main competitor, Israel Hayom – founded and funded by casino magnate Sheldon Adelson, a key supporter of the prime minister’s – in exchange for more favorable coverage in Yedioth Ahronoth.