Attorney General Uneasy About Lapid’s Controversial Housing Benefit Bill

Weinstein will wait until next week to weigh in on the plan to give bigger tax breaks to army vets.

Nir Keidar

Finance Minister Yair Lapid’s controversial bill to exempt some home buyers from the value-added tax is likely to undergo further changes amid reports that Attorney General Yehuda Weinstein is having second thoughts about the provision granting larger tax breaks to Israelis who served in the army or did civilian national service.

Although the treasury said that the VAT-exemption legislation, unveiled earlier this week, was developed in consultation with Weinstein, the Justice Ministry told TheMarker on Thursday that Weinstein has not yet finalized his position on the draft bill, which is still open to public response. He will do so before the Ministerial Committee for Legislation meets, which will probably be on Sunday, the ministry said.

The VAT-exemption legislation has drawn criticism because it creates two classes of tax exemptions: Those who have completed army or national service are entitled to the benefits for homes priced up to 1.6 million shekels ($460,000), including VAT, while those who haven’t served have a ceiling of 600,000 shekels. With VAT currently at 18%, people who qualify will enjoy enormous savings. But besides the fact that those entitled only to the lower ceiling will save less, recent housing market surveys have found there are virtually no new homes in the market selling for 600,000 shekels or less.

The great majority of ultra-Orthodox Jews and Israeli Arabs, most of whom neither serve in the army nor do national service, would be unable to participate in the program at all since there are no properties are for sale within the 600,000-shekel price range.

Lapid has defended the two-tier system, saying those who have served the country should be entitled to bigger benefits. But the Justice Ministry on Thursday expressed concern that the gap between the two tiers of benefits might be unconstitutional.

“The legal principle guiding this issue is to preserve a reasonable balance .... between those entitled to the full benefits as proposed in the draft and other populations, who are exempted from military or national service, in order to prevent disproportionate discrimination,” the ministry said, adding that the provisions would be considered in coordination with the Finance Ministry.

Weinstein appears to have beaten an embarrassing retreat from the agreement that he is said to have reached with the Finance Ministry on the bill just days ago. The exemption has faced a torrent of criticism both from an economic point of view -- that it will not serve to bring down home prices at it aims to -- and from a legal point of view -- that it discriminates between Israelis.

In fact, the 600,000-shekel provision was a compromise. Lapid had wanted the program to completely exclude those who have not done military or national service. Since the plan’s details were released earlier this week, there have been calls to raise the lower ceiling from 600,000 to 950,000 shekels.

The bill contains a number of other less controversial conditions, including rules about the family status and age of the buyers. While the proposed benefit is limited to first-time home buyers, for purposes of the legislation buyers who have not owned a home in 20 years will be considered first-timers.

Another source of controversy is the fact that the proposed bill makes no exception for Immigrants who arrived in the country past mandatory draft age; they, too, would be unable to enjoy the same benefits of those who have done military or national service. Immigrant Absorption Minister Sofa Landver -- who had supported the measure provided the army service provision was dropped for immigrants -- told TheMarker this week that Lapid told her he would push for that as the bill goes through the legislative process -- even though Weinstein objects to making an exception for immigrants.