Without indulging in the speculation that has run amok since opinion polls showed that Yesh Atid leader Yair Lapid is growing stronger, one thing we know for sure. If Lapid were to assume the premiership of Israel, or even go back to the Finance Ministry, he would abolish tax on ownership of multiple homes. Specifically, trying to cool down the raging housing market, Finance Minister Moshe Kahlon proposed that a special tax be imposed on owners of three homes or more.
Speaking to Army Radio on September 8, Lapid explained why he opposes the tax. “I’m against tax on a third home because it doesn’t make sense,” said the former finance minister. “If somebody owns three small apartments in Be’er Sheva or Dimona, and spent his whole life slaving for the children, then he owes tax. But another person who owns a 30-million-shekel penthouse would not pay tax.” The proposal is “weird,” Lapid went on to say, adding that Finance Ministry bureaucrats routinely push all kinds of ideas to the incumbent minister on how to increase tax revenues.
Back when starting his political campaign, Lapid sounded different. During the social-justice protests of mid-2011, he was writing a weekly newspaper column, and one particular one made waves: the one titled “The rebellion of the slaves.” Lapid explained to the protesters why exactly they are slaves, and who their masters are: “You’re right because you have turned into slaves. The ropes on your wrists are transparent and the shackles on your ankles are invisible, but they are wounding you. The bureaucracy and officialdom are indifferent to your fate.”
The people are slaves to the tycoons, Lapid wrote, and elaborated on the mechanism that created that bondage. If prices rise, he explained, if cottage cheese costs more and gasoline and rental prices keep climbing while salaries stagnate, then somebody else is making a profit: somebody with contacts in the right places, somebody for whom the rules of the game were shaped.
The slave who would be king
Wrapping up his column, Lapid wrote that the tell-tale trait of a slave is invisibility. “Our government, while exchanging secret handshakes under the table with representatives of the tycoons and various interest groups, usually doesn’t even remember that the slaves exist.”
We can assume that most Israelis would agree with Lapid today too, five years after he wrote that column. But the moment Lapid went into politics, in 2012, he began to act and has acted, consistently, contrariwise. No longer brother to the slaves, he joined the interest groups against which he had howled the year before.
One such interest group, an especially wealthy one, is that of multiple home owners.
The Finance Ministry says that about 54,000 Israelis own three homes or more. Together they own 190,000 homes. But the more interesting thing is the level of their income. According to figures the Finance Ministry showed the cabinet, the average income in the group is 46,000 shekels a month (from work and rental income, or income from other assets). That is more than seven times the median wage in Israel. By the way, the average age of these multiple homeowners is 56.
Those statistics are probably biased downward, for one thing because it’s a known fact that a lot of homeowners hide at least part of their rental income. On social networks, one of the more amusing answers to landlord’s threats to jack up the rent is, “If you do, I’ll rat you out to income tax.”
For another thing, thousands of these multiple homeowners are professionals or own small businesses, and in contrast to salaried workers, are used to trying to minimize their tax bill. Among the homeowners are also wealthy people who don’t work at all, because they don’t have to – but in the Finance Ministry computers they have zero income. In short, buying property is one way for savings to be less transparent than, say, investments in financial assets held at the bank.
Yes, there are some elderly people for whom such property, bought during their lifetime, is their old-age security and income. But at the end of the day, apparently the owners of multiple homes average more than 46,000 shekels a month. And Yair Lapid, the man who according to the polls would lead the biggest faction in the Knesset if elections were held today, wants to preserve their income.
Promised zero tax, people got zero gain
Lapid taking sides with the interest groups is no great surprise, at least to anybody who’s been keeping track of his deeds and decisions.
The moment Lapid joined the cabinet in early 2013, as finance minister, he entered into a deal with Ofer Eini, then the leader of the Histadrut labor federation and the biggest interest group in the land. The agreement protected mainly the interests of the biggest, most powerful unions. Later Lapid chose not to confront the natural gas companies (another rich interest group), and did not voice support of protests against them. During his brief stint at the Finance Ministry, housing prices, which he had vowed to tame, increased by double digits.
Wait a sec, what about that “zero-VAT” plan Lapid concocted to lower housing prices? That plan he himself admitted, after it took pot shots from professionals across the board, wasn’t “a plan for economists”? That “zero-VAT” plan hadn’t really been designed to lower home prices. It posed no threat to the profits by builders, or the income of multiple home-owners. It simply transferred VAT payments on new homes from people eligible to join the plan to the state. Ultimately it would have done nothing to lower home prices and if anything, its announcement led them to rise some more. (Netanyahu killed the plan, by the way.)
This is exactly how the “masters” exploit the “slaves”: One squeezes money from the state, which is the taxpayers’, the slaves’ money, and one creates a dynamic that causes prices to rise and rise and rise.
The money is there
Do the hundreds of thousands of Israelis who, according to the polls, would vote for Lapid, realize all that?
There is no question that the 54,000 owners of three or more homes understand exactly how much money Lapid saved them. But what about everybody else?
If we return for a moment to “my brother slaves” and to Lapid’s other famous slogan, “Where is the money”, maybe they don’t.
Remember, home prices are the main reason for inequality in Israeli society, beating out all other causes. Anybody owning a home, let alone several, lives in a different economic world than anybody not owning a home. The one has economic security, maybe for life and so do his children. The other does not.
Yes, it’s that simple. It’s been studied, in Israel too. Socioeconomic inequality arises first and foremost from asset gaps, more than income gaps. Rising housing prices usually means rising rental prices, and that is the main way wealth is transferred from the “slaves” to the rich. It’s been happening everywhere and the more Israeli housing prices rise, the worse it gets. Even the term rent, which in economics refers to fixed income from a franchise or advantage that others don’t have, arises from the simpler use of the word – money you pay for the right to live in somebody else’s property.
The legislative proposal by Kahlon, to tax owners of multiple homes, isn’t perfect. The formula for calculating the tax, published last week, is complicated. The law is indeed rather unfair to people who own a few tiny little apartments in the south, versus people who own a mansion in Jerusalem. And it could wind up jacking up rental prices in prime areas, though Kahlon and the treasury people reject that argument.
Many also shrug that Kahlon’s tax won’t stop the gallop by home prices. For that to happen, the tax advantages inherent in property investment (versus investment in other things) have to be abolished once and for all, they argue.
For instance, tax on owning a flat could be equated with the capital gains tax on financial assets. Maybe finally people would have reason to stop investing in walls in favor of shekels, businesses or other assets.
Yet despite these question marks, and maybe because of the attacks on the proposal to tax multiple homeowners – the law might spur change in the housing market after all. The signs all indicate that is why landlords are fighting the proposal so ferociously. Kahlon says his personal mobile phone has been overwhelmed with calls screaming against the idea, a thing that didn’t happen with any of his other ideas, which mattered more.
The budgets director at the Finance Ministry, Amir Levy, also tells of heavy pressure on him. Banks, building contractors, rich people, Knesset members – none want this law. All are apparently deeply worried that the law will do exactly what it’s meant to do – stop Israeli housing prices from rising any more.
And Lapid? He should think about writing a new column, one more up-to-date, titled, “My brother slaves, good luck to you. I joined forces with the tycoons, the interest groups and anybody who will join a coalition with me. You’re on your own.”
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