Fuel Hike and New Taxes Set to Hit Israeli Households Before Next Government Takes Office

Gasoline prices in Israel will rise by at least one new shekel per liter at midnight on Saturday. This increase occurs as the Finance Ministry ends a two-month subsidy that had kept fuel costs lower for drivers. The subsidy, which cost the state more than half a billion shekels, was implemented by Finance Minister Bezalel Smotrich. Self-service 95-octane gasoline is expected to reach 8.90 new shekels per liter. A slight decline in the dollar against the shekel yesterday may slightly moderate the final price.

The Finance Ministry has prepared a package of economic measures for the incoming government. The plan aims to fund an expected defense budget of 187 billion new shekels and prevent the debt-to-GDP ratio from rising. Some measures were developed in coordination with the Bank of Israel. The new government will be responsible for implementing these policies.

Higher fuel costs are expected to trigger price increases in other sectors where rates have been frozen. These sectors include electricity, water, and public transportation. Such increases are likely to push up the Consumer Price Index. The freeze on adjustments to income tax brackets, tax credit points, and National Insurance contributions will remain in place for 2027 under existing budgetary rules.

The ministry estimates these measures will generate 10 billion new shekels in revenue. To boost state income, the plan proposes mandatory reporting of income from residential property rentals. It also suggests taxing rental income from the first shekel earned. Currently, rental income up to 5,654 new shekels per month is exempt from tax. Some of these legislative initiatives have been stalled in the Knesset Finance Committee.

Additional proposals include a tax on international content providers operating in Israel, often called the Netflix tax. The plan also recommends reducing tax benefits on pension contributions and eliminating value-added tax exemptions for certain sectors. These steps are designed to broaden the tax base and increase government collections.

Funding for the increased defense budget will also come from sharp cuts to coalition funds. Sweeping efficiency measures will be applied across government ministry budgets. The primary challenge for the new coalition is passing a 2027 budget, or a two-year budget covering 2027 and 2028. This budget must include comprehensive reforms under the Economic Arrangements Law.

Because the Finance Ministry is unlikely to secure approval by the end of 2027, it will likely need to prepare a continuing budget. The timetable for these measures is tight. Parties forming the new coalition must begin taking action before the government is officially formed. The Tel Aviv Stock Exchange showed resilience despite Prime Minister Benjamin Netanyahu’s weekend warnings about the crypto economy, moving into positive territory by the end of trading yesterday.