Israel's State Budget: Examining Minor Revenue Streams Beyond Major Taxes
Israel's state budget for 2026 projects total revenues of approximately 850.59 billion shekels, with income tax, domestic loans, and VAT accounting for nearly 70% of this sum. Beyond these primary sources, a collection of smaller revenue streams, including royalties, customs duties, interest, bonds, and dividends, are expected to contribute around 19.3 billion shekels, or about 2.3% of the total.
Royalties from natural resources, projected at 2.736 billion shekels in 2026, are levied at 12.5% of the value of gas or oil at the wellhead. This is distinct from the excess profits tax, which is based on profitability after investment recovery and whose revenue flows into the sovereign wealth fund, the Israel Sovereign Wealth Fund, managed by the Bank of Israel. This fund, established in June 2022, is mandated to invest solely in foreign financial assets. By the end of 2025, it managed approximately $2.79 billion, yielding significant returns. However, annual transfers from the fund to the state budget are limited to 3.5% of its assets for the first decade.
Customs duties are projected to bring in 1.862 billion shekels in 2026, a significant decrease from previous years. This decline is attributed to a network of free trade agreements and the "zero customs" initiative, which has reduced or eliminated duties on various imported goods. Consequently, purchase tax on imports now generates substantially more revenue than customs duties. The remaining customs revenue primarily comes from imports from countries without trade agreements and specific protective tariffs.
Interest income on government reserves is estimated at 3.497 billion shekels for 2026, split between reserves held at the Bank of Israel and foreign currency accounts. This revenue stream is highly sensitive to interest rate fluctuations, as demonstrated by its significant increase in recent years as interest rates rose. The projected decrease for 2026 reflects anticipated interest rate reductions.
Other revenue sources include bonds, fines, and licenses (3.45 billion shekels), and miscellaneous income (2.334 billion shekels). Dividends from government companies are projected to be 900 million shekels in 2026, a sharp 62% reduction from the previous year, reflecting the unpredictable nature of dividend payouts which depend on company profitability and board decisions.
Overall, the smaller revenue streams collectively generated an excess of 2.7 billion shekels above projections in 2025. The Ministry of Finance tends to be conservative in its forecasts for these volatile income sources, often resulting in positive budget surprises. Key factors influencing these revenues in 2026 include global oil prices affecting royalties, the Bank of Israel's interest rate policy impacting interest income, and dividend distribution decisions by state-owned companies.
