With the support of Prime Minister Benjamin Netanyahu, his economic advisor and National Economic Council chair Prof. Avi Simhon is resolutely promoting the plan to impose a tax on banks to subsidize mortgage repayments, which have risen due to interest rate hikes starting in 2022. The plan applies to variable-interest loans, so those who took the mortgages assumed the risk that ultimately materialized.
At the end of last week, discussions on the matter were held with Netanyahu, to which the Bank of Israel was not invited. The proposal has drawn strenuous opposition from the Bank of Israel, which even issued an official position opposing the plan. Recriminations about “improper conduct” were even exchanged between the parties.
Fierce opposition to the plan has also been expressed by the Ministry of Finance, with all relevant departments – the Budget Department, the Accountant General and the Chief Economist – opposing the idea. The reasons are similar, and it is also argued that subsidizing mortgages does not necessarily help those in financial distress.
The proposal will move ahead even if interest rates fall
Sources at the National Economic Council insist that the reason for promoting this measure is because interest rates are so high. “If the Bank of Israel had cut the interest rate, all this would not have been necessary. Plain and simple,” the sources note, stressing, “The Bank of Israel is independent and decides according to its own considerations on interest rate policy. On the other hand, the Israeli government is also independent and can decide when it helps citizens and whom.”
Simhon tells “Globes” that the proposal will move forward, even if the Bank of Israel begins the process of cutting interest rates: “This is because the interest rate has risen by 4.4 percentage points, and it will take a long time for it to drop significantly.”
Data from the National Economic Council finds that mortgage repayments and supplementary loans have jumped by about NIS 1,500-1,600 per month due to the interest rate hike, which they estimate affects about 150,000 households in Israel. According to estimates published by the Bank of Israel on the plan, its main focus is a subsidy for existing mortgage holders, with the amount of the subsidy being a function of the real increase in mortgage repayments from 2022 to 2025. The funding for this will come from a bank tax.
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The interest rate increase has been particularly profitable for banks, which have reported record profits. Last year, the big five banks earned a combined NIS 30 billion in profit, and 2025 will be no different. The strong profits have already led to the imposition of an additional tax on bank profits by the Ministry of Finance, and also led the Bank of Israel to order banks to return NIS 3 billion to the public over two years in a package of benefits.
Sources at the National Economic Council say that the plan provides citizens with a safety net. “The plan says – if you get into trouble, we will help you.” Furthermore, the sources estimate that it will also free up private household consumption, which will help overall growth in the economy.
Bank of Israel: Wages have risen more than mortgages
The Bank of Israel expresses firm and even extraordinary opposition to the move. A source says, “In the Bank of Israel’s view, it can be said that the proposal is devoid of any economic logic. On the other hand, the potential damage to Israel’s economy, its image and international standing is enormous.”
The Bank of Israel has presented data on the scope of mortgage repayments in relation to monthly wages (PTI). According to the Bank of Israel, between January 2022 and April 2025, the average monthly mortgage repayment increased by NIS 960, while the average salary for a salaried position jumped by NIS 1,880.
Accordingly, nominal private consumption spending on credit cards also rose at a similar pace among mortgage holders and those without mortgages, the Bank of Israel adds, “These figures indicate that, relative to income, the overall burden on mortgage holders remained stable and even decreased among some of them.”
Simhon has not been convinced by the Bank of Israel’s response: “If the governor, who has my phone number, had called me when the proposal was published and asked me about it, we could have spoken about it. He didn’t bother to do that and issued a press release. This is improper conduct. Therefore, I could not comment on this paper (the Bank of Israel’s response). I saw the Bank of Israel paper for the first time when the Minister of Finance came to the Prime Minister’s Office with it and said that it had reached him.”
Finance Ministry does not understand “what problem the measure is trying to solve”
The Ministry of Finance, unusually, almost completely agrees with the Bank of Israel’s position. The Ministry of Finance sees the proposal to subsidize mortgages as a measure that does not necessarily reward the right public. “The Treasury opposes the move. This is an idea that has been raised for the third or fourth time, and it usually pops up around elections, each time in a different context,” says a Treasury official. “We do not think it promotes the economy. The proposal has a high cost and there is strong opposition from professional groups.” The official adds that the interest rate increase “Has affected not only mortgage holders, but also, for example, small businesses that are much more leveraged. It is not clear why a household with an asset is being helped and not a small business that was more affected by the expensive (and risky) loans it took out.”
The Ministry of Finance, like the Bank of Israel, adds, “It is not clear what problem this step is trying to solve. If we want to help households because disposable income has decreased, then in the years when interest rates rose, average income rose faster than interest expenses. We do not see a real impact on the disposable income of homeowners. Even if we did see such an impact, saying that the first population to be assisted are property owners creates complexity and a great moral dilemma. We are rewarding those who took a risk (and took out a mortgage) and cannot meet it, and ‘slap’ those who saw that interest rates were rising and, for example, repaid the mortgage.”
Published by Globes, Israel business news – en.globes.co.il – on November 17, 2025.
© Copyright of Globes Publisher Itonut (1983) Ltd., 2025.
