Fourth Lawsuit Filed Against ‘Third Apartment Tax’

Construction of new residential buildings by Gindi, in central Tel Aviv. (Miriam Alster/Flash90)

Yet another – the fourth so far – lawsuit has been filed against the third-apartment tax, this one filed by investors in southern Israel who are claiming that the tax harms the pension plans that they have set up. The lawsuit seeks to exempt properties that were purchased or owned before the tax was imposed.

According to the lawsuit, the tax is particularly detrimental to individuals who bought homes in peripheral areas. “The tax is discriminatory against owners of older and smaller apartments. It is not reasonable that the tax on a three-room apartment built in 1960 in Be’er Sheva should be subject to the same tax as one that was built in Tel Aviv in 2015.” In addition, the tax is regressive in that owners of older, smaller apartments have to pay the same tax as owners of bigger, newer apartments, but cannot make up their losses through higher rents.

A previous lawsuit against the tax was filed by a representative group of 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.

Yet another lawsuit was filed by opposition parties, who claimed that the tax violates the 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.”

Under the tax, which went into effect January 1st, landlords will pay a 1 percent tax per 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 law is expected to affect 50,000 people, who own a total of 180,000 homes.

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.  Statistics released by the Ministry last week show that owners of property who purchased an additional property – termed investors by the Treasury – slowed their activity in November, purchasing 23 percent fewer properties that month, compared to the period between January and September. December is expected to also show a significant reduction in investment purchases.