Chief Economist Quits Over Lapid Housing Bill

YERUSHALAYIM -

As a storm of criticism broke over Finance Minister Yair Lapid’s proposal to exempt some first-time homebuyers from the 18% Value Added Tax, the ministry’s chief economist Michael Sarel quit on Wednesday over the new housing policy.

In his letter of resignation to Lapid, Sarel explained that while it would be inappropriate to step down over normal policy disagreements, “my claim is that this specific instance is exceptional in its severity and the broad repercussions, which leave me no plausible alternative.”

Sarel charged that the housing exemption was “wrong in my opinion from almost every possible perspective,” adding that he was leaving in order to “prevent my name from being associated with this policy.”

On Tuesday, Lapid’s bill, which would provide exemptions only for those who had served in the IDF, was subjected to a fusillade of condemnation by Knesset members, particularly chareidi and Arab MKs, who attacked it for its blatantly discriminatory nature.

However, Sarel’s objections are those of a professional economist. Lapid’s policy, he contended, would not only fail to achieve its purported goal of lowering housing costs, but would impose a heavy financial and bureaucratic burden on the government.

He conceded that the popularity of the move would make it difficult to stop, but there was a consensus among professionals that it was a bad idea.

While it would be inappropriate to step down over normal policy disagreements, Sarel wrote, “my claim is that this specific instance is exceptional in its severity and the broad repercussions, which leave me no other plausible alternative.” Although he thought Lapid had overall run excellent economic policy up until this point, he went public with his protest in order to “prevent my name from being associated with this policy.”

In a statement, Lapid said he regretted Sarel’s decision, but thanked him for his service.

Sarel was not alone within the ministry, where senior officials are reportedly against the plan.

As one of them told TheMarker, “Every novice economist knows that the solution to the housing scarcity is to increase supply, not demand. The Finance Minister is working in the opposite direction.”

The official also noted that such proposals for lowering the VAT for homebuyers had been discussed a number of times in the past, and rejected by government experts. He cited the grant of 100,000 NIS offered to new homebuyers in 2013, which caused prices to jump upward, and benefited only the building contractors, not the prospective homeowners.

Outside the ministry, as well, there is a long list of critics and opponents, including chairman of the National Economics Council Eugene Kandel, Bank of Israel head Karnit Flug and officials in the Tax Authority.