Even before the exit poll results of today’s elections are known, the Finance Ministry has already prepared a plan that includes a series of harsh economic measures, intended, among other things, to finance the defense budget and prevent an increase in the deficit and the debt-to-GDP ratio.
Some of the measures were planned in cooperation with the Bank of Israel. The next government will be responsible for implementing the policy.
In addition, after Finance Minister Bezalel Smotrich subsidized gasoline prices by NIS 1 per liter over the past two months to prevent price increases, the subsidy, which has cost more than half a billion shekels, will end Saturday night. As a result, gasoline prices will surge by at least NIS 1 per liter at midnight on Saturday, and may rise further as global fuel prices climb.
The price of a liter of self-service 95-octane gasoline is expected to reach NIS 8.90. However, the dollar’s roughly 1% decline against the shekel yesterday will help moderate the increase.
Higher fuel prices are expected to trigger price increases across a range of other goods and services whose rates have so far been frozen at the government’s initiative, including electricity, water, and public transportation. This is expected to drive up the Consumer Price Index.
The freeze on adjustments to income tax brackets, tax credit points, and National Insurance contributions, along with the current VAT rate, will remain in place in 2027 under existing automatic budgetary provisions.
Revenue from these measures is estimated at NIS 10 billion. In addition to ending the gasoline subsidy, further tax measures will be proposed to boost state revenue.
These include mandatory reporting of income from residential property rentals and taxation of rental income from the first shekel earned. Currently, rental income of up to NIS 5,654 per month is exempt from tax. Some of these legislative initiatives have been held up in the Knesset Finance Committee.
Another proposal would impose a tax on international content providers operating in Israel, commonly referred to as the “Netflix tax.” Another measure expected to be implemented is a reduction in tax benefits on pension contributions, along with a recommendation to eliminate VAT exemptions for sectors that currently benefit from them.
Economic measures aim to fund increased defense budget
Broader macroeconomic measures are aimed at finding sources of funding for the required increase in the defense budget, which is expected to reach NIS 187 billion.
One almost certain source of funding will be sharp cuts to coalition funds, alongside sweeping efficiency measures across government ministry budgets.
The main challenge facing the coalition forming the next government will be the immediate need to pass a 2027 budget, or potentially a two-year budget covering 2027 and 2028. The budget must include comprehensive reforms under the Economic Arrangements Law.
As a result, the Finance Ministry is unlikely to secure approval by the end of 2027, so it will need to prepare a continuing budget.
The timetable for implementing these measures is tight, and the parties that make up the new coalition will have to begin taking action even before the next government is formed.
Stock exchange unfazed by Netanyahu crypto economy warning
Meanwhile, the Tel Aviv Stock Exchange appeared unfazed yesterday by Prime Minister Benjamin Netanyahu’s dire economic warnings over the weekend concerning the crypto economy.
Trading opened lower yesterday, the final trading day before the elections, against the backdrop of Netanyahu’s statements warning of possible sanctions, cuts to US aid, and the prospect of a shift toward a shadow economy.
However, the trend quickly reversed, and the stock market moved into positive territory, with the exception of banking stocks.
The stock exchange has declined since the beginning of the month amid uncertainty over the elections. Now, however, traders appear to be cautiously optimistic about the possibility of change.
