Sources inform ''Globes'' that Accountant General Michal Abadi-Boiangiu opposes establishing a fund to refund VAT on guarantees under the Sales Law (Apartments) (5733-1973), which Minister of Finance Yuval Steinitz announced last week, with the goal of freeing up NIS 6 billion in credit for developers and contractors.
"Globes" has obtained a copy of a sharply worded letter by Abadi-Boiangiu, in which she says, "The instrument is unclear, and therefore so is the amount disclosed. The technique is open-ended and the risk budget by the Budget Department is insufficient."
Abadi-Boiangiu demands the addition of a new budget item, amounting to NIS 200 million, compared with the NIS 10 million proposed by Budget Department against the risk of NIS 1.6 billion in guarantees granted each year. "The risk calculation is not sufficiently grounded, and it is not clear whether it is correct," she writes. As for the NIS 10 million allocation, she says, "This seems to me to be unreasonable, it does not reflect the risk, it is not conservative enough, and it relies on incorrect data."
Referring to a meeting last Tuesday, Abadi-Boiangiu continues, "I told all of you that the fact that this solution is off-budget requires us to take a very conservative approach to prevent a situation in which our successors will have to make large provisions in the budget." She argues that the Israel Tax Authority, which is supposed to manage the proposed fund, is unsure about its technique.
In a barb at the Budget Department, Abadi-Boiangiu says, "The conservative rules that the Ministry of Finance is applying on the budget should also be applied on off-budget commitments." The Accountant General is responsible for the guarantees.
Adopting Abadi-Boiangiu's position will effectively kill the fund, because in view of the need to cut NIS 12 billion from the budget, the Budget Department will not accept assuming a new NIS 200 million allocation, especially when it is not for budgeted items, such as education, jobs, or infrastructures, and it means setting aside money to cover guarantees.
Real estate industry sources say that Abadi-Boiangiu is miscalculating the risk. Given the steady rise in home prices, even if a contractor goes bankrupt, the apartment buyers and the bank will prefer not foreclosing the guarantee, but to receive the apartment (in the case of the buyer), or to complete the project (in the case of the bank). Otherwise, the buyer could buy a cheaper or more expensive home and the bank would have to finish the project and bear the high marketing costs. The cite the collapse of Heftsiba to back this argument: most of its projects were completed, and the company's guarantees were not foreclosed.
Abadi-Boiangiu says, however, that the past is no projection for the future, saying that the Sales Law (Apartments) is different, and that the Budget Department's position is based on a position paper written by an external advisor who works for the banks, and therefore has a conflict of interests. She adds that the position paper assumes that in 40% of contractor bankruptcies, banks will foreclose the guarantee.
Published by Globes [online], Israel business news - www.globes-online.com - on July 12, 2012
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