Lawsuit: Third Apartment Tax Unfair, Unconstitutional

There are now two High Court lawsuits seeking to strike down the “third apartment tax,” which officially went into effect Sunday. After opposition parties last week filed a petition seeking to halt the tax, an additional lawsuit was filed by investors and builders, who claim that the law interferes with the freedom to invest and do business, a Basic Law guarantee. In lieu of a constitution, Basic Laws are considered the standard which legislation must meet, and the lawsuit charges that the tax violates the Basic Law regarding freedom of commerce.

Among the petitioners are many who are “victims” of the law, the “land barons” who own more than two homes. Except that these “barons” are largely middle class people who invested in real estate because they were able to get homes at a good price, or as an alternative to banks or the stock market. According to the petitioners, they are being punished retroactively for investment decisions they made legally, and perhaps were even encouraged to make. In essence, the law is causing them to lose out on what they had planned as their retirement fund – a brutal blow to middle class Israelis, the petition said.

“The result of the lawmakers’ forcing tens of thousands of Israelis into a corner, based on the fact that they own property that they legally acquired, and thus forcing them to sell their property in order to avoid the tax, is unfair and an unfit practice in a democratic country, which is supposed to defend its citizens,” the petitioners said.

Last week, opposition parties filed a petition with the High Court demanding that the law be rescinded as violating Basic Laws, the Israeli version of a constitution. “The legislation of this law was conducted in a bullying and intimidating manner, and this cannot be the source of a law in this country,” said MK Miki Rosenthal (Zionist Camp), one of the MKs who filed the petition. “We cannot allow the standing of the Knesset and the democratic process to be compromised in the manner that occurred in the passage of this law. The legislation process of this law occurred in an illegal manner, with MKs not even able to study the law in advance.”

It will be recalled that the third apartment tax was pushed through in a marathon all-night session two weeks ago, with a vote to approve it conducted in the early morning hours. MK Rabbi Moshe Gafni, chairman of the Knesset Finance Committee which gave its final approval to the law, said that despite his own misgivings about it, he was not planning to repeat the experience and conduct new hearings about the bill. The measure was attached to the Arrangements Law, which was approved along with the state budget.

The petitioners, led by Rosenthal, stated in the petition that they did not necessarily oppose the law itself, but rather the problematic way in which it was pushed through. “The method by which this law was passed was extreme in that the basic methods of dealing with legislation were ignored, including the principle of full participation by all MKs in the legislative process.”

The tax, which is part of the Arrangements Law that accompanies the state budget, will kick in on January 1st. Under the law, landlords will pay a 1 percent tax a month on the assessed value of each home or apartment they own, beginning with the third property, up to a limit of NIS 1,500 per month, a total of NIS 18,000 a year. As the average value of homes in most cities is more than NIS 1.5 million, it is expected that most of the Israelis who will have to pay the tax will pay the full amount. The rule is expected to affect 50,000 people, who own a total of 180,000 homes. The value of the home will be determined by a government-certified assessor, based on home value data supplied by the Central Bureau of Statistics for each geographical area.

The hope among proponents of the law is that it will dampen the enthusiasm among investors for real estate, where much of the excess cash in the economy has sloughed off to, in the wake of near-zero bank interest rates.