Israel's Chief Economist Urges Tax Benefit Cuts for Pensions

Dr. Shmuel Abramzon, the chief economist at Israel's Ministry of Finance, has proposed a significant shift in economic policy, suggesting that Israelis are saving too much, which he argues is hindering national economic growth. In an interview with Globes, Abramzon explained that while high savings rates and tax benefits provide a safety net, they also suppress private consumption, a key driver of the economy.

Abramzon acknowledged that private consumption has grown consistently, exceeding one trillion shekels in 2025 and surpassing 100,000 shekels per capita annually. However, he noted that the growth rate has slowed due to factors like supply chain issues, higher interest rates, and tax hikes for war funding. He pointed out that a substantial portion of public assets is managed by institutional investors, making the funds largely inaccessible for immediate consumption.

The economist highlighted that Israel's savings rate is exceptionally high compared to other OECD countries, partly due to mandatory pension contributions and tax incentives. While these savings offer stability and help households manage financial challenges, Abramzon believes the current level is imbalanced, preventing the economy from reaching its full potential and potentially impacting welfare and exchange rates.

The Ministry of Finance is reportedly developing recommendations for the next government, focusing on reducing the substantial tax benefits for pension funds and study funds, estimated at 40 billion shekels and 13 billion shekels annually, respectively. Abramzon argued that these benefits are disproportionately high, especially given the mandatory savings requirements, and are out of step with international norms. He suggested that reducing these tax breaks could allow for broader tax rate reductions and increase government revenue through higher consumption taxes like VAT and income tax.