State-controlled prices on taxes and services are set to rise on January 1, 2025, increasing the pressure on an Israeli public already facing a skyrocketing cost of living. According to an investigation by Davar, every family will pay approximately 420 shekels ($116) more each month. From 2025, fixed rates will be updated, and the government’s new budget will come into effect. The war has been extremely expensive for all sectors of Israeli society, and a significant portion of the budgetary sources to address the economic challenges is expected to come from the citizens’ pockets.
Tax Increases
VAT: The Value-Added Tax (VAT), which is a uniform tax on goods and services to cover production costs, will increase from 17% to 18%.
This will add approximately 120 shekels ($33) per month on average to a family’s expenditure, or about 1,400 shekels ($386) per year. This change represents an increase of about 5.8% in the VAT amount for the vast majority of routine expenses.
Because the VAT is a regressive tax, it affects lower income consumers more than wealthier ones. This tax rise therefore only exacerbates inequality.
Income Tax: Tax brackets and tax credit points will be frozen for three years.
Tax credit points and tax brackets are typically adjusted in line with the Consumer Price Index (CPI). Currently, the lowest tax brackets are for a monthly income of about 7,000 shekels ($1,930) and 10,000 shekels ($2,760), but freezing these brackets means they will not increase alongside inflation. As a result, larger portions of salaries will fall into higher tax brackets, effectively increasing the tax burden.
Every Israeli citizen is entitled to at least 2.25 tax credit points, which amount to approximately 545 shekels ($150), with additional parameters (such as marital status or number of children) adding more points to reduce tax payments. However, the freeze on these points means they will not adjust with inflation, reducing their real value and increasing the effective tax burden.
These two changes together will add approximately 100 shekels ($28) per month for an average family, or about 1,200 shekels ($330) annually.
Municipal Tax (Arnona): An increase of 5.29%.
From 2025, an average family currently paying 414 shekels ($114) in municipal tax, known in Hebrew as arnona, will pay an additional 22 shekels ($6) per month, or about 265 shekels ($73) more annually. (This tax is also paid by tenants, not just property owners.)
This is the highest increase in municipal tax rates in Israel in the past 15 years. By law, the arnona rate rises annually based on the average changes in the Consumer Price Index (CPI) and the public sector wage index.
National Insurance (Bituah Leumi): Rates will increase from 0.4% of salary to 1.2% of salary.
The increase in national insurance contributions is regressive, meaning it will have a greater impact on low-income earners. Those earning less will feel the burden more significantly as a larger proportion of their income is allocated to these payments. This increase is expected to cost an average family at least 120 shekels ($33) more per month, or 1,440 shekels ($397) annually.
Service Costs
Domestic Electricity: Rates will increase around 3.8%: 14 shekels ($4) per month, or 168 shekels ($46) per year.
The Electricity Authority announced that the increase stems from a combination of inflation and high interest rates, with increased operating costs, such as site protection. The carbon tax likely contributes 1% to the increase. The authority announced that the increase was expected to be sharper, but it was curbed thanks to the start of operations of a gas-fired power plant, as well as the privatization of the Eshkol power plant.
Water: Water rates will increase by about 4%.
Water users will be charged about an extra 7 shekels ($2) per month, or 84 shekels ($23) per year. This is due to operating costs as well as the increase in the price of electricity. The price of water for agriculture will also increase accordingly and may lead to an increase in food prices. The water rate increased by 1.6% last July.
Public transportation: Price increase of up to 33%.
The price of a single urban trip will increase from 6 shekels ($1.65) to 8 shekels ($2.20). This increase will add about 10 shekels ($2.76) on average per family per month, an average that takes into account many families who do not travel by public transportation regularly. For regular consumers of public transportation, an increase of dozens of shekels per month is expected.
This jump in fares comes after a 10%-15% increase which occurred in recent months, without an official announcement from the Ministry of Transportation. As part of the second phase of the “Transport Justice” reform, residents of neighborhoods classified in a low socio-economic cluster will receive a 50% discount, and the age of eligibility for free travel will be lowered from 75 to 67.
Additional price increases
Additional decisions made as part of the 2025 budget will affect the prices of additional products: the cancellation of the excise tax reduction will lead to an increase in the price of fuel, the price of cooking gas is set to gradually increase sharply following the carbon tax that will be applied to it, and the discount on the electric vehicle fee will be canceled on January 1.
This article was translated from Hebrew by Hannah Blount.
