Finance Minister Yair Lapid on Monday defended his plans to offer better housing tax breaks to those who complete national service, amid accusations that the scheme discriminates against the ultra-Orthodox and the Arab communities.

“We won’t apologize for being Zionists,” Lapid said at an economic conference in Tel Aviv. “A young person who contributes three years of his life is a better citizen and is more worthy and deserving of a clear and pronounced benefit.”

“Whoever gives more, whoever contributes more, will receive more,” he added.

MK Ahmad Tibi (Ra’am-Ta’al) denounced the tax plan as being prejudiced against Arabs and ultra-Orthodox Jews.

“This constitutes obvious discrimination against Arabs and Haredi [the ultra-Orthodox]… and violates elementary rights on the basis of political views and national association,” he said. “In a democracy you don’t make equality and rights between citizens dependent on army or national service.”

Finance Ministry officials had reached an agreement on Sunday with Attorney General Yehuda Weinstein to cancel the 18 percent value-added tax on apartments that cost up to NIS 1,600,000 ($460,000) for first-time home buyers who either served in the IDF or performed national service. For those who did not complete any kind of national service — mostly Arabs and members of the ultra-Orthodox community — VAT would be waived only on apartments with a price tag of NIS 600,000 ($173,000) or less. Critics pointed out on Monday that it is virtually impossible to find apartments in Israel at such a price.

The value of the apartments would be determined based on the value per square meter, according to a government assessor.

Finance Minister Yair Lapid arrives at the Prime Minister's Office in Jerusalem, April 27, 2014 (photo credit: Amit Shabi/POOL/Flash90)

Finance Minister Yair Lapid arrives at the Prime Minister’s Office in Jerusalem, April 27, 2014 (photo credit: Amit Shabi/POOL/Flash90)

MK Yaakov Asher (United Torah Judaism) said Sunday that Lapid’s plan was redolent of of “anti-Semitic governments” and unrealistic. “The criteria that the Finance Ministry published would have made any anti-Semitic government proud,” Asher said. “The Haredim can maybe buy an apartment for NIS 600,000 on Mars.”

The clause that stipulates that only those who have participated in military or national service would qualify for the higher benefit effectively rules out most Israeli Arabs and ultra-Orthodox citizens. Weinstein initially objected to the requirement but his eventual approval of the plan provides an element of protection should the scheme be challenged in the High Court of Justice. The benefits must still be brought before the Knesset for approval before they can be signed into law.

In addition, first-time apartment buyers under 35 would have to be in a long-term relationship — married or common-law — and have at least one child in order to qualify for the benefit. Childless couples and single people over 35 years of age would also qualify (provided, of course, that they’ve served in the army), as would disabled citizens will also qualify.

Lapid has faced scathing criticism over the plan from economists, pundits and even officials in his own Finance Ministry, many of whom have called the plan populist and said it could backfire and lead to higher prices.

Opponents of the plan, which was approved by the cabinet in March, have not voiced opposition to Lapid’s stated goal — to lower the skyrocketing cost of housing in Israel — but rather to his proposed means.

In March Bank of Israel Governor Karnit Flug warned that some elements of the new measures were likely to have negative consequences. She noted specifically that the sudden lowering of housing costs would create a spike in demand, which would likely increase the cost for those ineligible for the benefits — and even for the eligible would effectively transfer much of the savings from the buyers to the contractors.

The Finance Ministry’s director of economics and state revenues, Michael Sarel, tendered his resignation at the time, saying there was “widespread agreement among professionals” that lowering the VAT was not the right move, and that implementing Lapid’s decision would represent “a colossal professional failure” on his part.

Times of Israel staff contributed to this report.