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No mortgage tax breaks = good news for Israel

TaxCreditThere was an interesting article in The Jerusalem Post a couple of weekends ago that presented another take on why Israel has come out relatively better from the global financial crisis (see my previous post here): we don’t have tax breaks for household mortgages.

When we first made aliyah, we couldn’t believe that, not only did you have to put 60% or more down on a mortgage, but that it wouldn’t help reduce your income taxes. We kept waiting for the day when Israel would “see the light” (and indeed, now-faltering insurance giant AIG did enter the Israeli market a number of years ago, though we never took advantage of its services).

The problem in countries other than Israel is that these mortgage tax breaks encouraged citizens from the U.S. to Australia to place a disproportionally large share of their savings into property, wrote Pinchas Landau in The Post. “This was entirely rational behavior, because the tax system had been rigged to encourage them to do so.”

But when the economy crashed, property investments tanked big time and with them went trillions of dollars of consumer wealth. A more balanced investment strategy would have been far more prudent, Landau claimed. Such as the way things are in Israel.

Nevetheless, Landau’s perspective seems a bit off when looking at wealthy neighborhoods in Jerusalem and the north of Tel Aviv. Still, the vast majority of Israelis’ property holdings are much more modest.

To compare with one of the worst hit U.S. cities, Holon is not Hollywood (Florida, that is).

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Posted in In the News, Saving Money. Tagged with , , .

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