Israel's High Court to Knesset: Explain Why Tax on Owners of 3 Homes Shouldn’t Be Canceled

The justices addressed the fact that the Knesset admitted that the legislative process had been faulty but had requested that the law not be canceled.

David Bachar

The High Court of Justice on Tuesday ordered the government and Knesset to explain why the new tax on owners of three or more homes shouldn’t be canceled outright due to flaws in how the tax law was legislated. The government and Knesset have until March 23 to state their reasons.

The justices slammed the legislative process carried out by the Knesset Finance Committee. During the court hearing, representatives of the Knesset and the government expressed differences of opinion, but both parties admitted that the legislative process had been flawed.

The petitions against the law were filed by a list of opponents including opposition MKs and the NGO Hatzlaha. Justices Esther Hayut, Noam Sohlberg and Neal Hendel heard the cases.

The tax on owners of three or more apartments was passed on March 2 of last year, as part of the state budget and Economic Arrangements Bill approval process. The tax states that people who rent out three apartments must pay an additional tax of up to 1,500 shekels ($412) a month on the rental income. The goal of the tax is to push investors out of Israel’s overheated real estate market.

On the evening of March 2, an updated version of the bill was submitted to the Knesset committee’s legal adviser Sagit Afik at 7 P.M., and to MKs at 9 P.M. This was not enough time for them to properly review the draft bill. The legal adviser’s request to postpone the discussion about the bill was rejected due to pressure from Finance Minister Moshe Kahlon to vote on the budget that evening. Ultimately the committee discussion began at 11 P.M., and the vote was held at 7 A.M. the following morning, without opposition MKs present.

Two days later, Knesset legal adviser Eyal Yinon stated that there had been a “fault at the root of the process.” Knesset speaker Yuli Edelstein asked Knesset Finance Committee chairman Moshe Gafni to call for another discussion on the bill, but Gafni refused.

During Tuesday’s hearing, the justices addressed the fact that the Knesset admitted that the legislative process had been faulty, but had requested that the law not be canceled. Rather, the Knesset had asked to receive a warning from the justices. Sohlberg stated: “The state admitted there was a very serious fault.”

Yinon had suggested that the Knesset give a “non-validity warning” but not cancel the law. Representatives of the petitioners have asked the court to cancel the law outright.

Hayut stated during the hearing, “We’re not addressing the question of whether the law is good, or whether it achieved its goal. These are not questions for a court. In order for us to cancel the law, there needs to be disproportionate harm. That is very unusual.”

Legal sources believe that the most extreme action the court could take would be to cancel the clause in the Economic Arrangements Bill legislating the tax, and call on the Knesset to re-legislate the tax from the very beginning. Another possibility is that the court could cancel parts of the tax legislation, or criticize the legislative process without taking action.

The justices demanded answers from the representatives of the Knesset and the government. Attorney Gur Bligh of the Knesset’s legal bureau stated, “I’ve explained to the court why the flaw isn’t at the root of the process. Something different happened here, and our stance is unusual. We deliberated no small amount.” Hayut responded, “You dribbled across the entire field and kicked the ball out of bounds.”

Sohlberg stated, “The problem with your stance is with the second phase of the ‘non-validity warning.’ The court doesn’t need to say, ’Nu nu nu.’ A child knows if he’s behaved wrong. The Knesset members and clerks involved in the matter knew there was a severe flaw in the process. They don’t need a ‘non-validity warning,’ and we as a court don’t need to give it.”

Hayut, addressing Bligh’s request that the court give the Knesset a warning, stated, “In case someone wasn’t clear how a proper legislative process should take place, then the Knesset legal adviser ... instructed and spoon-fed all the principles to everyone involved. The committee’s legal adviser said she was not able to fill her role under the given circumstances. Before the final Knesset vote, the Knesset legal adviser and the Knesset chairman stated in a letter, ‘It’s not too late, let’s fix the shortcomings.’ There were enough warnings, internally and externally. I don’t understand what the [court’s] warning should be.”

She added, “There’s something incoherent here. If you’ve concluded that the fault is at the root of the process, what about the resulting legislation? It will stay on the books as a warning for the future? That doesn’t make sense.”

Bligh stated in the law’s defense that despite the legal adviser’s warnings, most of the MKs chose to vote for it. He argued that a warning from the court would have meaning for the Knesset.

The justices also pushed the representative of the Finance Ministry, attorney Shosh Shmueli, to state whether she agreed with Yinon that there had been a problem. Shmueli evaded the question and stated that the MKs had been familiar with the planned tax.

Hayut told her, “Please state a clear opinion. You cannot get out of this.” Hendel added, “I don’t want to play games. At what point will you answer our questions?” Shmueli asked to take a break to speak with ministry officials, and later said the ministry would agree to a “relative non-validity.”

Attorney Ran Rosenberg, also representing the Finance Ministry, later stated that the ministry believed there was a serious shortcoming but that it was not at the root of the legislative process.