Lapid’s VAT-exemption Housing Plan Stalled in the Knesset

Finance Committee chairman blocking vote until treasury agrees to two of his amendments.

Knesset Constitution, Law and Justice Committee chairman MK Nissan Slomiansky.
Emil Salman

With the Knesset’s summer recess approaching, Finance Minister Yair Lapid’s plan to exempt many home buyers from value-added tax is stalled in the finance committee, deadlocked over two amendments that its chairman is seeking to insert into the legislation.

Knesset Finance Committee chairman Nissan Slomiansky (Habayit Hayehudi) has refused to schedule a vote, to protest Lapid’s opposition to two amendments he is seeking. One calls for the VAT exemption to be framed as a five-year temporary order rather than as permanent legislation. The other would reserve the most generous exemption for those who had served either as combat soldiers or soldiers in combat-support roles.

The committee must approve the legislation – the centerpiece of Lapid’s efforts to rein in spiraling housing prices – before it can go to the full Knesset for the two final votes that would make it legal. But Slomiansky told TheMarker that without the changes he is requesting, he sees the bill as problematic.

“This simply isn’t a law either from the standpoint of its economic value or its constitutionality,” he explained. “The amendments I’m proposing are needed in order to move it forward. The treasury says the home prices will likely starting falling in the next few years, so why do we need to make the VAT exemption permanent instead of for five or six years?”

Lapid’s controversial plan would exempt people who are buying a newly built home from VAT, which is currently 18% – an amount that could potentially save them hundreds of thousands of shekels. The Lapid plan is tiered, with people who have served in the army or civilian national service entitled to the exemption for a house worth up to 1.6 million shekels ($467,000), while others would be limited to a property of no more than 950,000 shekels.

Economists have attacked the plan as likely to spur new demand for homes and cause prices to rise, while legal experts have questioned whether the law can distinguish between army veterans and others.

Under Slomiansky’s proposal, the top exemption would only be awarded to those whose military service was combat-related. Other veterans would get the exemption only on homes worth up to 1.4 million shekels. For those who have not done military or national civilian service at all, he suggests that they be exempt for the first 950,000 shekels of the price and then pay VAT on anything above that, rather than be faced with an absolute ceiling as Lapid proposed.

Opposition ultra-Orthodox lawmakers, who had filed a number of reservations regarding the proposed legislation because their constituents typically shun both military and civilian national service, have said they support Slomiansky’s approach.

Slomiansky has had discussions over the past few days with Finance Ministry officials, but the dispute has yet to be resolved. If the measure is not approved by the Finance Committee Monday or Tuesday, it is doubtful whether the full Knesset will have time to give final approval before it breaks for the summer.

Olivier Fitoussi