Last week, the Knesset plenum approved the Budget Bill for Fiscal Year 2025, proposed and advanced by Finance Minister Betzalel Smotrich (Religious Zionism).
Smotrich fashions himself the political leader of the hardline national-religious camp – those living in the territories won in 1967 for ideological reasons. His party’s electoral base, like that of its coalition partners in the current government, is predominately composed of lower-income voters.
In a triumphant speech before the Knesset last week, Smotrich declared that this budget was proposed and passed “with [the] full backing of the people of Israel and civil society… a war budget, and with God’s help [a] victory budget.”
And yet Smotrich’s bill constitutes a stunning betrayal of the Israeli working class. Not only does it fuel growing private monopolies across major sectors of the economy and directly attack the livelihoods of salaried and unsalaried workers alike, the bill also contains policies which may degrade key socio-cultural institutions that underpin Israeli civil society. Let’s examine two of the most concerning measures.
Crackdown on the “Black Economy”
The “black economy” sounds illicit. It’s a phrase meant to provoke no small measure of moral or security panic.
But English speakers may know it by another term; “under the table” payments. According to studies published by the OECD, the “under the table” economy constitutes roughly around 20% of Israel’s entire GDP.
This economy is a major engine of cash-heavy industries and supports plumbers, electricians, construction workers, child and elder care providers, restaurant servers and kitchen staff, hospitality workers, taxi drivers, truckers, independent contractors, small business owners, and soldiers working between rounds of reserve duty (just to list a few examples), who provide the thousand services that keep our society running and are often already struggling to make ends meet.
A crackdown on “under the table” payments, including businesses no longer being allowed to deduct expenses from invoices not assigned a number in the tax system, any invoice above 5,000 shekels requiring recording as of June 2026, and further regulation of all cash transactions above 6,000 shekels, will tighten the screws even further on families already locked into economic difficulties.
Since the beginning of 2025, a reported 3 out of 5 Israelis describe worsening financial situations, in part due to the regressive VAT (Value Added Tax) increase felt most acutely by low-income households). And where is this money going? Domestic electricity rates are anticipated to increase by 3.4% this year, water by about 4%, and public transportation prices increasing up to a whopping 33%.
Extending VAT to sectors of the Israeli economy which have traditionally provided a financial buffer for working class families will only serve to further burden our economic backbone in an environment already fraught with financial insecurity and increasing costs across both the private and public sectors.
Everyone should of course pay their taxes. But to crackdown on “under the table” payments during a period of economic turmoil only serves to harm the working class.
“Under the table” payments are a symptom of flaws in an economic system, not the cause of a deficit. This policy is another step towards the wedding of corporation and state, those bodies best served by placing all of human activity on a spreadsheet.
Tech & Real Estate Tax Breaks
While Minister Smotrich squeezes Israel’s working class tighter, the sectors of our economy most susceptible to predatory investment and speculation are permitted to run free.
While from a “free market” perspective, lowering taxes to encourage foreign investment into the local economy sounds like a good idea, this tax break (with an emphasis on tax deferral for corporate restructuring and mergers) opens the door for multinational corporations and foreign firms to poach Israeli capital without compensating our society.
The elimination of mandatory shareholding periods for investors makes it ever more likely that the high-tech industry will become a casino with a revolving door for quick exits and capital gains. Founders and investors will be incentivized to strike it rich quick and leave just as fast instead of building sustainable companies with long-term value in Israel. Our tech sector is internationally recognized as it is – there is no need to remove barriers or further incentivize foreign investment. Unless the aim is to extract value from the domestic economy and inject it ever more into the flows of global capital.
The elimination of completing construction as a prerequisite for tax deferral in real estate is perhaps even more egregious.
With one of the few barriers to speculative and monopolistic behaviors in the real estate sector removed, this policy incentivizes investors and developers to undertake an entire host of practices to the detriment of the working class.
We should expect slower delivery of housing units, further tightening supply during a housing crisis, land hoarding and speculation with investors and large developers sitting on permits or half-finished projects to further inflate demand, and land/housing monopolies emerging over time – especially in areas of new development.
Furthermore, this policy makes real estate more appealing to passive and foreign investors who are less concerned with building finished homes and more concerned with acquiring another asset to be leveraged and traded. For renters, this can quickly become a nightmare: fewer available units, higher rents, and even more market control shifted to non-resident players, inevitably causing the market to respond more to global capital flows rather than pressing domestic needs.
We are not the United States of America
Finance Minister Smotrich acts with one hand as the perfect pro-growth patriot, and with the other sells entire sectors of our economy to the highest bidder in the markets of global capital. These policies betray not only his base, but Israel’s entire working class. This should actually be understood as a natural extension of neoliberal policy and the Americanization of Israeli politics and economics, dividing us even further on sectarian and class lines.
The Israeli economic mindset is not the same as the mindset in the United States. We are not “temporarily-embarrassed millionaires” trying to bootstrap ourselves into success. We want to provide for our families, give back to our communities, and just do a little better than that bastard Yitz who opened up a convenience store right down the block from our own. For most Israelis, the “start up nation” is a misty isle somewhere near the mouth of the Yarkon where they eat eggs benedict instead of shakshuka (a place we can’t even afford to visit now that recuperation pay has been slashed).
Though Smotrich claims the mandate of the people, he seems to have forgotten about most of us entirely.
