Israel Tax Authority Chief Sees No Tax Cuts Before 2027

Israel's Tax Authority Director, Shai Aharonovich, stated that he does not foresee any tax reductions occurring in 2027. Speaking at a real estate conference in Eilat, Aharonovich explained that the state's expenditures in the coming years will necessitate the discovery of additional revenue sources, beyond expected growth in the economy. He indicated a need to find approximately 40 billion shekels annually for the next year, in addition to the base budget and projected growth.

Aharonovich outlined three potential approaches to address budget needs: increasing the deficit, cutting services, or raising revenues. "This is where I come in, to bring in more taxes in a smarter way. 2027-2028 will be very challenging years," he said. He also commented on US aid, noting that while significant, the doubling of the defense budget since October 7th presents a broader fiscal challenge, as defense spending is unlikely to decrease regardless of the government.

Despite a surprisingly strong tax collection performance in the past two years and praise for the Finance Minister's support in deficit reduction and revenue enhancement, Aharonovich reiterated that tax cuts are not anticipated next year. He proposed implementing an annual tax on vacant land as an alternative to raising VAT, corporate, or marginal taxes, suggesting it as a form of wealth tax on landowners. He also emphasized the necessity of reporting requirements for rental income, even if a tax from the first shekel is not implemented.

Aharonovich acknowledged the current difficulties in the housing market and the construction sector, noting a decrease in tax revenue from this area. He stressed the continued demand for housing, both for purchase and rent, and the importance of a robust construction industry. Furthermore, he suggested that increased enforcement against tax evasion could yield an additional 7-8 billion shekels annually, linking this effort to combating protection rackets. He also pointed to expanding labor force participation, particularly among the Haredi community, as a factor that could eventually enable tax reductions, expressing a personal hope to achieve this by the end of his term.