Israel's 2026 Budget: Understanding State Revenue Sources

Israel's state budget for 2026 projects total revenues of approximately 850.6 billion shekels, primarily derived from three distinct sources: taxes, debt issuance, and non-tax revenues. Taxes are expected to account for the largest portion, totaling 565.3 billion shekels, while debt issuance is projected to bring in 265 billion shekels, and other non-tax revenues are estimated at 20.3 billion shekels. It is crucial to distinguish between taxes, which represent funds collected and retained by the state, and debt, which must be repaid with interest in the future.

Within the tax category, income tax is the single largest contributor, expected to yield 288.4 billion shekels, representing over half of all tax revenue and 33.9% of total state income. Value Added Tax (VAT) is the second-largest tax revenue source at 170.4 billion shekels, followed by purchase tax, fuel tax, and other smaller taxes totaling 55.8 billion shekels. Notably, domestic debt issuance of 229.6 billion shekels is larger than VAT collection.

The budget also includes an internal accounting entry of 45.2 billion shekels labeled "transfer from part B," which is offset by an equal negative entry "transfer to part A." This internal movement does not represent actual revenue or expenditure and is a recurring item in the budget that fluctuates annually.

Analysis of past budget performance reveals a shift. From 2021 to 2023, actual revenue collection consistently fell short of projections. However, in 2024 and 2025, actual revenues exceeded forecasts, driven by higher-than-expected collections from income tax and VAT, while debt issuance fell below targets. This indicates a stronger-than-anticipated tax base in recent years.

The article details how these revenues are categorized, distinguishing between direct taxes like income tax, which are progressive, and indirect taxes like VAT and fuel taxes, which disproportionately affect lower-income households. It also provides a historical comparison of projected versus actual revenues over the past decade, highlighting the accuracy of the Treasury's estimates.