Lapid Scrambles to Save Tax Rebate Plan for First-time Home Buyers

Although the ministerial housing committee is due to convene on Monday to make decisions regarding Finance Minister Yair Lapid’s controversial plan to exempt many first-time home buyers from the payment of value-added tax, the details of the plan have been refined over the past several days.

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A preliminary draft of the legislation implementing the proposal was circulated to members of the ministerial committee last Thursday, but it has yet to receive the approval of Attorney General Yehuda Weinstein.

Contacts among the members of the inner cabinet on housing are still consulting with one another to create a version that will garner wide support. At the same time, the Housing and Construction Ministry is pushing to broaden the criteria so that it can provide benefits to people who already own a home but want to trade up to a better one.

The proposal floated last week was designed primarily to benefit married young couples with at least one child buying a first home for no more than 1.6 million shekels ($460,000).

However, in the plan circulated to ministers last Thursday, the requirement that the couple have a child was removed – on the condition that at least one of the spouses in the childless relationship is 35 or older.

The definition of a couple was also broadened to include common-law spouses.

One of the two spouses, whether married or common law, must have served either in the military or civilian national service, and neither is to have owned a home before.

The program also applies to single first-time home buyers who are at least 35; the most recently circulated plan also makes disabled first-time home buyers eligible.

Lapid’s Yesh Atid party was elected in large part on the issue of the high cost of housing and other living expenses facing the country’s middle class. Since last year’s Knesset election, Lapid has been under pressure to come up with initiatives to deal with the matter.

He also made a campaign issue of the military service exemption that most ultra-Orthodox yeshiva students have received – an issue that has become known as an “equal sharing of the burden.”

The ultra-Orthodox military exemption in its previous form was struck down in court and new legislation on the subject is pending. Criticism has been leveled against Lapid for the criterion in his new VAT exemption proposal relating to military or civilian national service.

The requirement would exclude most of the country’s ultra-Orthodox and Arab citizens – who generally do not serve in the army – from the program’s benefits.

“In spite of all the slander,” Lapid responded wryly, “the program does include them ... all they need to do to qualify is to enlist in the army or in national service.”

Lapid’s initial plan prompted the resignation last Wednesday of the Finance Ministry’s chief economist, Michael Sarel. It has also been criticized for what its detractors say is a program that won’t work because it fails to boost supply as a means of lowering housing prices; instead, they argue, it will boost demand and raise prices.

The ministerial housing cabinet is also due to consider another Lapid proposal on Monday, this one for a system of incentives that would encourage local governments to increase residential construction in each of their jurisdictions between 2014 and 2016.

The projected cost of this incentive program is 146 million shekels in 2014, and 120 million in each of the two subsequent years.

The program would provide grants to local governments that issue at least 200 housing construction permits between 2014 and 2016, on condition that construction grows by at least 10% compared to the period between 2010 and 2012.