Smotrich Threatens Israeli Banks: Canceling Benefits Will Double the Tax

Translation of SadaNews Economy - Israeli Finance Minister Bezalel Smotrich issued a direct threat to Israeli banks, stating that if they proceed to cancel the benefits provided to consumers following the imposition of the new tax, he will raise the tax rate from 15% to 30%.

Smotrich said on Thursday: "I have seen a threat from the banks to cancel the benefits for consumers if a tax is imposed on them. Therefore, I tell them: If the benefits are canceled, I will double the tax. It is unreasonable that those who benefit from the rise in interest rates are the ones who profited at the citizens' expense and did not provide any support during the war."

The tax proposal, which was officially published this week, was significantly higher than the recommendations of the professional committee that discussed the matter in the Ministry of Finance, which recommended a rate not exceeding 10%. According to the legal memorandum, an additional tax will be imposed on any bank whose profits in a specific year exceed 50% of its average profits between 2018 and 2022, defining these profits as core earnings and imposing a tax rate of 15% on them. The ministerial committee that studied the issue suggested lower rates ranging from 7% to 10%, but the Ministry of Finance and the Bank of Israel opposed these conclusions.

According to data from the banking system for 2023, approximately 900 million shekels could have been collected from this tax. In the years 2024-2025, a special tax was applied under a different mechanism, yielding a total of 2.5 billion shekels over two years. The Israeli Ministry of Finance expects the new tax to increase state revenues by 1.13 billion shekels in 2026, rising to 1.5 billion shekels annually between 2027 and 2029, continuing until 2030 as an extraordinary tax imposed annually on banks.

The Association of Bankers launched an attack on the decision, with its CEO Eitan Mademon stating that the minister "has declared war on the people and imposed a hefty tax in total contradiction to the position of the professional team he appointed himself." Both the Bank of Israel and the budget department in the Ministry of Finance expressed strong opposition, arguing that although bank profits are high, imposing a sectoral tax will harm investment confidence and is considered a retroactive change to the rules of the game. The ministerial report indicated that bank profits have tripled since the interest rate was raised in April 2022, with net interest income rising from 9 billion shekels before the interest rate hike to over 15 billion shekels in 2025.

The Bank of Israel warned that imposing the tax solely on banks would create distortions in the market and discourage new entities from entering, emphasizing that the majority of bank shareholders are the public through their long-term savings, and thus the tax burden would fall directly on them. It also pointed out that banks have already returned about 3 billion shekels to the public through a series of benefits as part of a previous scheme.

In a related context, the bank supervisor Dani Khatchiashvili emphasized at an economic conference the need to avoid sectoral taxes, stating: "If the state wants to impose a tax on excess profits, it should impose it on all companies comprehensively, not just on banks." He added that imposing the tax solely on banks would lead to new investors shying away from entering the market and discouraging competition, which goes against the government's stated goals.