Economic emergency plan doesn't include tax increases but freezes on updating payments to Israelis

The economic emergency plan formulated by senior officials of the Ministry of Finance, as a temporary substitute for the failure to prepare an orderly state budget for 2025, does not include tax increases and the main point will be an almost complete freeze on updating payments to citizens, even though the rise in inflation this year is expected to be higher than 3% this year.

This would mean a financial loss that could reach up to thousands of shekels per year for every household in Israel. At the same time, the average salary in the economy will be frozen, for all that this implies, but on the other hand, it is possible that the increase in property taxes will be reduced from a rate of 5.26% to about half and an increase in electricity rates will be avoided.
Dramatic measures that the finance officials will recommend are a salary freeze for hundreds of thousands of public sector employees, and as a result of the freezing of the calculation of the average salary in the economy, an expected raise of thousands of shekels for about 1,000 of the economy's top officials will also be canceled. Also, the recruitment of new employees to government offices will be stopped for a limited period.
The freezes and additional measures are expected to contribute to reducing the deficit by NIS 8-10 billion, compared to the NIS 30 billion needed to meet the budget deficit target for next year.
Senior officials at the Finance Ministry stated in conversations with Ynet that due to Prime Minister Benjamin Netanyahu's and Finance Minister Bezalel Smotrich's adamant opposition to tax increases, they realized that there was no point in recommending tax increases as part of the plan. One of the senior officials said today that "maybe we will still be able to convince to raise one or two taxes".
Instead, as mentioned, the income tax rates will be frozen as well as the increase in the number of credit points, and this will be a "disguised tax increase", as defined by the head of a department in the Ministry of Finance. A freeze on tax rates means that each rate will not increase by about 3%, so employees will not benefit from a "discount" at this rate in tax payments.
Freezing payments to almost all citizens, except the disabled, and those with special needs, and some types of subsistence allowances for vulnerable populations, will result in a loss of up to thousands of shekels per year for each family in Israel. This actually means a loss of about 3% of the citizens and households from the linking of benefits, such as children's benefits, unemployment benefits and income security, benefits for single parents, mothers, alimony, and more. According to the emerging proposal, the amounts of grants for discharged soldiers, birth grants, study grants, and survivors will also be frozen.
The planned measures are expected to cause overwhelming opposition from some key parties in the economy: a senior Histadrut official told Ynet today that a wage freeze in the public sector and other measures that would harm workers will immediately lead to the declaration of a labor dispute in the economy. Officials in the local authorities have made it clear that they will vigorously oppose the reduction of the increase in property tax rates in view of the high expenses of the authorities, especially during wartime. Sources in the ultra-orthodox parties also stated that they would oppose the freezing of child allowances and additional subsistence allowances and such decisions would have almost no chance of passing through the Knesset.
Among the taxes that were temporarily dropped from the chapter in the shadow of the opposition of the Prime Minister and the Minister of Finance: increases in real estate taxes, a higher increase in value added tax (which will increase by only 1 percent on January 1st) and the cancellation of existing tax exemptions, such as on the training funds and the VAT in Eilat .
Other measures that were recently planned by the Treasury and will not be included in the plan:
• Cancellation of the absolute tax exemption for apartment renters up to a monthly amount of NIS 5,564.
• Reduction of benefits under the law to encourage capital investments.
• Increasing the purchase tax for owners of a second or third apartment or higher.
• A possible increase in corporate tax for a limited period.
• Cancellation of certain benefits in import taxes that were enacted in recent years by temporary provisions.
To all of these will be added another limited horizontal cut in the procurement budgets of the government ministries, apparently with the exception of security, and internal security, against the background of the war situation, but it is possible that this time the health, welfare and education budgets will be partially excluded from the cut, so that the cut will be quite limited.
It will also be proposed that the Tax Authority hold a broad operation to expand the collection of black capital.
The plan is expected to be presented to Finance Minister Smotrich in the coming days and the approved sections of it will undergo legal drafting for legislation, although it is not yet clear whether Smotrich will decide to advance the measures.