Prime Minister Benjamin Netanyahu and Finance Minister Bezalel Smotrich signed a late-night amendment on Tuesday allowing local authorities to raise property taxes (arnona) as they see fit in 2026, effectively abolishing the restrictions previously imposed by former Interior Minister Moshe Arbel.

The decision — presented by the government as “assistance to local authorities” — is expected to directly and continuously raise the cost of l

Haim Bivas: “Our Demands Were Accepted

In an internal letter to mayors and local council heads, Haim Bivas, Mayor of Modi'in and Chairman of the Local Government Center, announced triumphantly that his demands to remove the limitations on exceptional property tax hikes had been approved.

Bivas, who orchestrated the move, congratulated Netanyahu and Smotrich for their “swift response,” telling local leaders they are now free to request increases far beyond the automatic formula set by law.

In practice, the decision opens the door to widespread increases in the only municipal tax that rises automatically each year — and which does not reflect the level of services provided by the authority.

Automatic Increase for 2026: 1.626% 

Under existing law, property taxes were already scheduled to increase by 1.626% in 2026.
Former Interior Minister Arbel had announced in May that exceptional increases beyond this rate would not be approved, except for authorities undergoing recovery processes.

However, roughly 100 local authorities requested permission to exceed the automatic rate — requests Arbel rejected.

With Shas having withdrawn from the government and no Interior Minister in place, Netanyahu now serves as Acting Interior Minister. His decision to lift the brakes comes in the midst of an election campaign in which the support of mayors — particularly from influential cities — is politically significant.

Sharp Backlash From Business Community

Manufacturers’ Association: “A Hidden Tax That Raises the Cost of Living”

Criticism emerged swiftly.
Dr. Ron Tomer, President of the Manufacturers’ Association, condemned the move and urged the government to reverse it immediately.

“Instead of showing responsibility at a sensitive time, when businesses and households are still recovering from the war, the Finance Minister once again chose to harm businesses and accelerate the cost of living,” Tomer said.

He accused Smotrich of abandoning Arbel’s sensible policy and imposing a “hidden tax” without public debate:

“On one hand, the Minister of Finance hands out benefits to online shoppers exempt from VAT, and on the other, he hits businesses with higher property taxes. This directly harms households, businesses — and raises prices for everyone.”

Property tax is widely criticized as a rigid, outdated levy that increases automatically each year based on inflation or public-sector wage growth, regardless of the services received. For businesses, it is a major operational expense that is often passed on to consumers.

What the Change Means for the Public

Local Authorities Free to Raise Taxes “According to Needs” — Meaning Budget Gaps

With the new authorization from Netanyahu and Smotrich, local authorities can now raise property taxes according to “local needs.” In practice, this often means covering budget deficits rather than improving services.

The result is expected to be significant additional financial pressure on Israeli households, reduced disposable income, and higher consumer prices as businesses pass the increases down the line.

For many Israelis, the government’s overnight decision translates into a clear message:
the cost of living is about to rise — again.