No VAT Break on Housing This Summer as Knesset Suspends Debate

Summer recess begins today, but Knesset could reconvene to vote on law during holiday.

Michal Fattal

Finance Minister Yair Lapid’s hopes of passing a bill exempting certain first-time home buyers from paying VAT were dashed Wednesday. The Knesset decided to reconvene the committee currently discussing the bill Thursday – a day after parliament starts its summer break. However, Housing and Construction Minister Uri Ariel vowed to call a special Knesset session during the recess in order to complete the so-called “zero-VAT act.”

The delay in passing Lapid’s bill is likely to reverberate across the real estate market, where sales of new homes plunged to a nine-year low in May, with buyers holding out for the exemption to go into force. As a result, building starts have tumbled and contractors have put off bidding to buy state-owned land from the Israel Land Authority.

Those who qualify for the VAT exemption would save hundreds of thousands of shekels on buying their first home; the current rate is 18%.

The Knesset Finance Committee had been discussing the law Wednesday morning and intended to bring it before parliament for its second and third readings later in the day. But the committee discussion was abruptly terminated at 1 P.M. by the Knesset speaker, because debate in the Knesset plenum was starting. Knesset Speaker Yuli Edelstein refused the request of Finance Committee chairman Nissan Slomiansky to continue the sessions in parallel.

Lapid’s plan has plenty of opponents, including leading economists who suspect that it will spur even greater demand for housing and jack up prices further.

Lapid convened a press conference for noon Wednesday (to talk about compensation for damage caused by Operation Protective Edge) and said he is still determined to pass the VAT bill. “It will be delayed by a month and a half, most of which is holidays anyway,” he said.

Sources in Lapid’s Yesh Atid party said that if the law only passes later, it will apply retroactively from September 1, 2014.

The ultra-Orthodox parties, meanwhile, announced that they will not withdraw their 2,000 objections to the bill unless Lapid agrees to institute differential VAT. In other words, that anybody who did not serve in the military – and most Haredim do not – will be eligible for an exemption from VAT on a home worth up to a million shekels (just over $290,000). But anybody buying a home worth up to 1.6 million shekels will pay 18% VAT only on the difference between a million shekels and the cost of the home.

Lapid opposed the proposal Wednesday, after which Haredi MKs threatened to exploit the time allocated them to elaborate their objections, which would “ground” the Knesset members to the plenum for weeks (for each objection, the MK presenting it is allocated three minutes to address the plenum).

Prime Minister Benjamin Netanyahu also stepped in, directing his people to clarify to the Yesh Atid representatives that they need to compromise with the Haredim.

MK Itzik Shmuli (Labor), a graduate of the social-justice protests currently serving his first Knesset term, said that Lapid’s flagship housing program “conceals a great fraud, and it’s good that it’s been stopped. Lapid is creating the impression that anybody who served in the army will benefit, but in practice, while 100,000 young couples wait on the fence, there’s barely enough to give to 10 percent of them.”

MK Elazar Stern (Hatnuah) said he would vote against the bill because it didn’t include towns in the Galilee and Negev. “The state needs to strengthen the outlying areas, especially when it comes to housing,” he said. “If the towns in the Galilee and Negev aren’t entitled to benefit under the VAT law, I’ll vote against it.”

Against the positions of the coalition and cabinet, the committee accepted amendments by Knesset members from Labor, United Torah Judaism and Shas, thus applying the terms of the law to disabled people whom the army rejected.

Another objection raised by the opposition was that the law was designed to help the Finance Ministry’s public relations. “The entire purpose of the law is to enable the Haredim and Arabs to be screwed,” said MK Yaakov Litzman (United Torah Judaism).

During the Finance Committee discussion on Wednesday morning, MK Moshe Gafni (United Torah Judaism) also charged that the law was designed to hurt the Haredi and Arab public, and suggested it would be more appropriate to wait until the war is over.

Stav Shaffir (Labor) said that Finance Ministry representatives should be summoned to explain how they mean to finance the law, given the ongoing expenses of the operation in Gaza.

When Slomiansky asked to continue the Finance Committee discussion, Gafni intervened and asked that it be suspended. “Do me a favor, let’s continue the discussion,” Slomiansky said to him. “I thought you were doing me a favor and it turns out you’re a pig,” Gafni replied.

At some point Gafni began to quote Torah and talk about the destruction of the Second Temple. Slomiansky tried to shut him up: “You’re creating a circus,” the chairman said. “I wish you would shut down the session and I could go cry over the destruction of the Temple,” Gafni said. “If the law passes, you’ll cry,” Slomiansky retorted.

“You cannot show gladness during the Nine Days because of the destruction of the Temple and the gratuitous hatred,” Gafni said, referring to Tisha B’Av. He then quoted from Torah and told a story from Gemara, relating the story of Kamtza and Bar Kamtza. A messenger supposed to invite Kamtza to a wedding instead invited Bar Kamtza, an enemy of the groom. Gafni used the story as a metaphor for the Habayit Hayehudi and Yesh Atid parties, which he accused of causing the sort of gratuitous hatred that led to the Temple’s destruction. Altogether, Gafni managed to hold up the session for 20 minutes.

Litzman, meanwhile, claimed that the law was designed to discriminate against the Haredi public. The Knesset members then briefly squabbled about the stopwatch, with Yaakov Asher (United Torah Judaism) charging that it was being used discriminatively. “It almost made my ears hurt,” Shaffir responded, to which Ofer Shelah (Yesh Atid) added, “Sit next to Gafni and you’ll find out what earache is.”

No provision for new immigrants

Officials at the Immigrant Absorption Ministry expressed surprise on Wednesday to find that the current draft of the bill does not provide a special provision for new immigrants, enabling them to get the exemption on homes even if they haven’t done military or national civilian service. 

The Israel Defense Forces policy is not to draft immigrant males who moved to Israel after the age of 30 or women who were older than 20 when they arrived. In practice, even immigrants younger than that are not drafted in many instances, and this effectively excludes many of them from the maximum benefits, officials noted.

Immigrant Absorption Minister Sofa Landver said the bill, as it now stands, violates an explicit commitment by Finance Minister Yair Lapid to address the issue in the bill. Her Yisrael Beiteinu party, whose voter base includes a large number of immigrants from the Former Soviet Union, is expected to oppose the bill if the issue is not addressed.