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In blow to Kahlon, High Court strikes down third apartment tax

Top court sends finance minister’s signature bill back to Knesset committee, citing faulty legislative practices

Marissa Newman is The Times of Israel political correspondent.

A view of the upscale Mamila neighborhood in Jerusalem, on October 27, 2015. Most of the luxury apartments are owned by foreign residents or by Israelis who use them as vacation homes. (Lior Mizrahi/Flash90)
A view of the upscale Mamila neighborhood in Jerusalem, on October 27, 2015. Most of the luxury apartments are owned by foreign residents or by Israelis who use them as vacation homes. (Lior Mizrahi/Flash90)

The High Court of Justice on Sunday struck down a Knesset law imposing a special tax on homeowners who own more than two pieces of real estate, in a blow to Finance Minister Moshe Kahlon and a victory for real estate investors.

The top court ruled legislators did not comply with Knesset procedures in expediting the approval of the law in December 2016. It sent the legislation back to the Knesset’s Finance Committee for revisions and additional plenum votes.

The law was a project dear to Kahlon, who threatened in October 2016 to topple the government if the coalition should reject the proposal. It was supposed to be a key part of his efforts to bring down sky rocketing housing prices.

Kahlon said he was disappointed at the move from the court. “I’m sure there are thousands of young couples who are just as disappointed as I am over this,” he said.

“I promise we will continue our battle against investors,” he said.

As the Knesset raced to approve the two-year budget late last year, the Knesset Finance Committee finalized the clause on the homeowner tax after all-night talks, despite the opposition of committee chairman Moshe Gafni.

After the Finance Committee green-lighted the proposal, the Knesset legal adviser sent a letter to Chairman Gafni (United Torah Judaism), expressing concerns the committee approval did not comply with Knesset procedure and urging a re-vote.

Gafni, however, declined to bring the provision to another committee vote, prompting some opposition members to pledge they would bring the matter to the High Court of Justice.

Finance Minister Moshe Kahlon speaks during a Labor, Welfare and Health Committee meeting at the Knesset in Jerusalem on June 19, 2017. (Yonatan Sindel/Flash90)
Finance Minister Moshe Kahlon speaks during a Labor, Welfare and Health Committee meeting at the Knesset in Jerusalem on June 19, 2017. (Yonatan Sindel/Flash90)

As the bill returns to the Finance Committee, it remains unclear whether now, without the looming threat of coalition parties withdrawing their support for the budget — which could trigger elections — the committee would re-legislate the provision.

According to the Finance Ministry, more than 50,000 Israelis own three or more properties — a total of some 180,000 houses and apartments nationwide.

In the final version, the committee capped the tax on the third apartment and beyond at NIS 18,000 ($4,700). The tax was to be determined by the square footage of the apartment, but would not exceed the aforementioned sum each year. The softened version also exempted homeowners from the tax if two of their real estate properties are valued under NIS 1.15 million ($300,000).

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