Govt plans mortgage relief from tax on bank profits

There has been a major development in the government’s plan to introduce a special tax on bank profits: In talks held last week between Prime Minister Benjamin Netanyahu and Minister of Finance Bezalel Smotrich on the 2026 state budget, Netanyahu sought to advance legislation that would transfer tax revenues from banks directly to homebuyers whose mortgage interest rate repayments have risen sharply in recent years, instead of to the Ministry of Finance.

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Under the plan, tax on banks would increase beyond previous estimates, to about NIS 3 billion three billion annually. The plan would be gradually phased out as interest rates fall. The level of benefits for mortgage holders and other details of the plan have yet to be decided, but among other things they would be a function of the rise in their repayments and the value of their apartment.

The biggest benefits will be for homeowners of apartments priced at just above NIS 2 million – the average price of an apartment in Israel. The benefit will be gradually reduced to a ceiling of an apartment worth NIS 4 million – double the average price.

The Ministry of Finance opposes the plan led by Netanyahu’s economic advisor, Prof. Avi Simhon, chair of the National Economic Council. However, legally, it is not clear whether tax money can even be allocated directly to specific populations. Moreover, the Ministry of Finance argues it is not the state’s role to finance the public’s losses in the mortgage market.

The governing coalition will also have to tackle the issue of distributive justice. In other words, how will it justify providing financial benefits to homeowners, who are economically stronger than those who do not own their own homes? This, at the same time as the government opposes providing tax credit points to reservists, claiming that it is not equitable towards low-paid reservists? Moreover, the benefit only helps those who purchased apartments when the interest rate environment was still zero, and not those who wish to purchase an apartment now, when the Bank of Israel interest rate is 4.5%. It remains unclear whether the plan will be included in the 2026 budget proposal, which is subject to political uncertainty.

Published by Globes, Israel business news – en.globes.co.il – on October 30, 2025.

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