Gov’t plans bank tax for mortgage relief even if rate falls

With the support of Prime Minister Benjamin Netanyahu, his economic advisor and head of the National Economic Council, Professor Avi Simhon, is promoting a plan to impose a tax on banks to subsidize mortgage payments, which have risen due to higher interest rates starting in 2022. The plan applies to loans with a variable rate, so those who took out mortgages took on the risk that eventually materialized.

At the end of last week, discussions took place on this issue with Netanyahu, but the Bank of Israel was not invited to them. This proposal sparked strong opposition from the Bank of Israel, which issued an official position opposing the plan. Accusations of “inappropriate behavior” were exchanged between the two parties.

The Ministry of Finance also expressed strong opposition to the plan, with all relevant departments – the Budget Department, the Accountant General, and the Chief Economist – opposing the idea. The reasons are similar, and it is also argued that mortgage support does not necessarily help those in financial distress.

The proposal will go ahead even if interest rates fall

Sources at the National Economic Council insist that the reason for promoting this measure is that interest rates are too high. The sources point out, “If the Bank of Israel had reduced the interest rate, all of this would not have been necessary. Clearly and simply,” stressing that “The Bank of Israel is independent and decides according to its own considerations regarding interest rate policy. On the other hand, the Israeli government is also independent and can decide when to help citizens and who.”

Simhon tells Globes that the proposal will go ahead, even if the Bank of Israel begins the process of lowering interest rates: “That is because the interest rate rose by 4.4 percentage points, and it will take a long time for it to decrease significantly.”

Data from the National Economic Council indicate that mortgage and supplementary loan installments jumped by about 1,500-1,600 shekels per month due to higher interest rates, which is estimated to affect about 150,000 families in Israel. According to estimates published by the Bank of Israel about the plan, its main focus is to provide support to current mortgage holders, with the amount of support based on the real increase in mortgage repayments from 2022 to 2025. Funding for this will come from the bank tax.

The interest rate increase was particularly profitable for banks, which reported record profits. Last year, the five major banks made a combined profit of NIS 30 billion, and 2025 will be no different. The strong profits have already led to an additional tax on bank profits by the Finance Ministry, and have also prompted the Bank of Israel to ask banks to return NIS 3 billion to the public over two years in a package of benefits.

Sources in the National Economic Council say that the plan provides citizens with a safety net. “The plan says – if you get stuck, we’ll help you.” Moreover, sources estimate that it will also free up private household consumption, which will help overall growth in the economy.

Bank of Israel: Wages rose more than mortgage loans

The Bank of Israel expresses its strict and even extraordinary opposition to this step. One source says: “From the Bank of Israel’s point of view, it can be said that the proposal is devoid of any economic logic. On the other hand, the potential damage to Israel’s economy, image and international standing is enormous.”

The Bank of Israel provided data on the range of mortgage payments in relation to monthly wages (PTI). According to the Bank of Israel, between January 2022 and April 2025, the average monthly mortgage payment rose by NIS 960, while the average salary for a paid job jumped by NIS 1,880.

Accordingly, nominal private consumer spending on credit cards also rose at a similar pace among mortgage holders and those without a mortgage, and the Bank of Israel adds: “These figures indicate that, relative to income, the overall burden on mortgage holders has remained stable, and even decreased among some.”

Simhon was not convinced by the Bank of Israel’s response: “If the governor, who has my phone number, had called me when the proposal was published and asked about it, we could have talked about it. He did not bother to do that and issued a press release. This is inappropriate behavior. Therefore, I was not able to comment on this paper (the Bank of Israel’s response). I saw the Bank of Israel paper for the first time when the Finance Minister came to the Prime Minister’s Office with it and said that it had reached him.”

The Ministry of Finance does not understand “what problem this measure is trying to solve.”

Unusually, the Ministry of Finance agrees almost completely with the position of the Bank of Israel. The Ministry of Finance believes that the mortgage subsidy proposal is a measure that does not necessarily reward the appropriate audience. “Treasury opposes this move,” says a Treasury official. “This is an idea that is coming up for the third or fourth time, and it usually comes up closer to the election, and each time in a different context.” “We don’t think it boosts the economy. The proposal has a high cost and there is strong opposition from professional groups.” The official adds that the increase in interest rates “affected not only mortgage holders, but also, for example, small businesses that are more leveraged. It is not clear why a family with assets is being helped and not a small business that was more affected by the expensive (and risky) loans it obtained.”

The Finance Ministry, like the Bank of Israel, adds, “It is not clear what problem this move is trying to solve. If we want to help families due to declining disposable income, then in years when interest rates rose, average income rose faster than interest expenses. We do not see a real impact on the disposable income of homeowners. And even if we saw such an impact, saying that the first residents to be helped are landlords creates a huge moral complexity and dilemma. We are rewarding those who took a risk (and got out of the mortgage) and could not meet it, and “slap” those who saw that interest rates “They are rising, and they have, for example, paid off the mortgage.”

Published by Globes, Israel Business News – en.globes.co.il – on November 17, 2025.

© Copyright Globes Publisher Itonut (1983) Ltd., 2025.