Fuel Prices: Israel set to drop gasoline subsidy amid new fiscal plan

Drivers across Israel will pay at least one additional shekel per liter for gasoline starting at midnight on Saturday. The government has decided to end a subsidy that lowered fuel prices by NIS 1 per liter over the past two months. This subsidy cost the state more than half a billion shekels. The immediate price increase is expected to push the cost of a liter of self-service 95-octane gasoline to NIS 8.90.

A roughly 1% decline in the dollar against the shekel yesterday helped moderate the expected hike. However, global fuel prices may continue to climb. Higher fuel costs are expected to trigger price increases in electricity, water, and public transportation. These rates have remained frozen at the government's initiative until now. The rise in these costs is projected to drive up the Consumer Price Index.

The Finance Ministry has prepared a plan of economic measures to address the state's finances. The plan aims to finance the defense budget and prevent increases in the deficit and debt-to-GDP ratio. Some measures were developed in cooperation with the Bank of Israel. The next government will be responsible for implementing these policies. Revenue from the proposed measures is estimated at NIS 10 billion.

The plan includes mandatory reporting of income from residential property rentals. It also proposes taxing rental income from the first shekel earned. Currently, rental income up to NIS 5,654 per month is exempt from tax. Some of these legislative initiatives have been held up in the Knesset Finance Committee. Another proposal would impose a tax on international content providers operating in Israel, a measure commonly referred to as the Netflix tax.

Additional measures include a reduction in tax benefits on pension contributions. The ministry also recommends eliminating VAT exemptions for sectors that currently benefit from them. The freeze on adjustments to income tax brackets, tax credit points, and National Insurance contributions will remain in place in 2027 under existing automatic budgetary provisions.

The defense budget is expected to reach NIS 187 billion. Sharp cuts to coalition funds and sweeping efficiency measures across government ministry budgets are expected to provide funding. The main challenge for the new coalition will be passing a 2027 budget, or potentially a two-year budget covering 2027 and 2028. This budget must include comprehensive reforms under the Economic Arrangements Law.

The Finance Ministry is unlikely to secure budget approval by the end of 2027. It will need to prepare a continuing budget. The timetable for implementing these measures is tight. Parties forming the new coalition will have to begin taking action before the next government is officially formed.

The Tel Aviv Stock Exchange showed little reaction to Prime Minister Benjamin Netanyahu's economic warnings regarding the crypto economy. Trading opened lower on the final day before the elections, following Netanyahu's statements about possible sanctions and cuts to US aid. The trend quickly reversed, and the market moved into positive territory. Banking stocks remained the exception to this upward movement.