Israeli Official Blasts Plan to Impose Tax on Home Purchases

Head of Tax Authority’s real estate unit says decision was made without considering effects on market or economy.

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The Finance Ministry’s decision to impose purchase taxes on homes bought by anyone trading up to better accommodations wasn’t based on an intensive study or examination of how it would affect the economy, the head of the tax authority’s real estate department charged yesterday.

Shai Aharonovich leveled his accusation before the Israel Builders Association at its annual conference as Finance Minister Yair Lapid’s war on rising home prices comes under growing criticism.

“One morning a Finance Ministry official asked me how many homes change hands [by families trading up],” Aharonovich told the gathering at Herod’s Palace Hotel in Eilat. “I told him about 30,000 a year. So we multiplied by 3.5% and came up with NIS 1 billion.

“That’s what happens when the till needs to be filled and there’s a NIS 40 billion deficit and the treasury people need to close the gap,” Aharonovich said. “We also waged a battle with the diamond dealers the last few years, but what can you do when the diamonds can be moved to Belgium, something that’s a bit hard to do with real estate.”

Aharonovich was referring to the Finance Ministry’s decision to impose a 3.5% tax on the purchase price of homes bought by people who already own one. Until now buyers were exempt on amounts up to NIS 1.47 million.

“Our role is to bring in money,” Aharonovich continued. “Any alleviation or exemption will lead right away to a reduction in revenues.”

His words elicited a vocal response from the audience, prodding him to add: “Up until last night we held meetings on how to arrive at a better alternative for covering the deficit, not necessarily by real estate. We are trying to make a strong effort at easing the bureaucracy.”

Meanwhile, Israel Builders Association President Nissim Bublil told the conference that taxation in the real estate industry reached NIS 11 billion last year.

“The state now collects 70% on the price of a home: 35% is the price of the land and 35% is imposed by the state as taxes,” railed Bublil. “We’re a cash cow: Just let us work and the state till will fill up.”

Bublil told the audience that the solution to the housing shortage requires a comprehensive approach to the industry − lowering of land prices, funding of labor, and regulation. “When I began working 30 years ago we would take out a building permit in three months,” he recalled. “Now 30 years have passed and it takes three years.”

Lapid: ‘Emergency situation’

In fact, that is what Lapid vowed the government would do yesterday after the ministerial housing committee, voting Wednesday, approved creating a national housing headquarters inside the Finance Ministry.

The new unit aims to cut red tape and improve coordination between ministries to increase the supply of homes and moderate price rises.

“Lowering housing costs is one of the government’s major tests,” Lapid said. “We have an emergency situation in housing, which is threatening an entire generation of young people who are afraid that they’ll never own a home. All those sitting in this room are committed to solving the issue and achieving its goals.”

The government plans to help build some 150,000 rental apartments over the next decade. He said a quarter of the rental units would be set aside for teachers, police officers, nurses and other designated professions, as well as for public housing.

But Shlomo Ben-Eliyahu, director-general of the Housing and Construction Ministry, told the conference yesterday that the government doesn’t intend to do anything in the short term that could lead to a significant decline in housing prices, for fear of putting the broader economy at risk.

“The real estate market takes in NIS 100 billion a year,” he said. “Prices mustn’t be drastically slashed by up to 22%, which would lead to a crash − but only gradually. Any other way could cause an economic crisis and rupture the market.”

The solutions offered by the ministry aren’t for the immediate future, and barely any improvement can be seen for even the long term. Approval from the Finance Ministry is required for some of the proposals and it’s doubtful it will be forthcoming.

“We are conducting talks with the Finance Ministry,” explained Ben-Eliyahu. “I assume the plan will be accepted in its current format after certain compromises are reached.”

A construction site in Jerusalem. Credit: Emil Salman

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