Prime Minister Benjamin Netanyahu through his senior economic advisor Prof. Avi Simhon, has asked Minister of Finance Bezalel Smotrich to consider cutting VAT from 18% to 17%. Sources in the Ministry of Finance believe the feasibility of implementing such a move before the elections is low, and see this as "another attempt to hoodwink the public before the elections, without any real plan behind it other than grabbing media headlines, while ultimately, the officials who vetoed a benefit for the public will be blamed."
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Ministry of Finance officials oppose the initiative, which would cost the state an estimated NIS 6-7 billion annually in revenues.
This is not the first time that Simhon, who fights Netanyahu's corner on budgetary matters, has called for cutting taxes, claiming that the country's economic situation allows it. Since the decision to raise VAT by 1% to 18% at the start of 2025, as part of the budget balancing plan that the Ministry of Finance passed after the outbreak of the war, Simhon has proposed several times to return VAT to 17%.
The previous proposal fell
Simhon’s high-profile proposal, to subsidize mortgage holders whose repayments have become more expensive as a result of rising interest rates in recent years, suffered from resolute opposition from the Ministry of Finance and the Bank of Israel. Even the International Monetary Fund (IMF) noted that the proposal raises "moral hazard concerns." Last month, Simhon’s proposal was withdrawn from the agenda, claiming that bringing the Knesset elections forward would not allow the legislation to be completed.
Simhon addressed the VAT issue last month at a Tel Aviv University conference. There, he noted that steps are needed that will put more money into the public’s pockets to boost private consumption in Israel including a reduction in interest rates by the Governor of the Bank of Israel and a reduction in VAT by the Ministry of Finance.
Published by Globes, Israel business news - en.globes.co.il - on June 4, 2026.
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