About 100,000 additional households are expected to receive a property tax discount starting in 2026, but local authorities are expected to lose about NIS 1.1 billion from their revenues. These are the implications of the new reform in property tax discounts, which was published by the Interior Ministry and changes the way eligibility for a discount is determined based on income. This emerges from an analysis by the Chief Economist Department at the Finance Ministry.
Until today, eligibility for a property tax discount was determined according to a model that, according to the analysis, created discrimination in favor of large households. The new regulations change the way eligibility is calculated and the discount rates.
The number of eligible households is expected to grow by about 100,000, from 740,000 to about 840,000, an increase of 13%. At the same time, the total amount of discounts based on an income test is expected to grow from NIS 2.2 billion to about NIS 3.2 billion, an increase of 49%.
About 91% of households that were already eligible for a discount will receive a higher discount rate, while only 0.3% will receive a lower discount. On average, the discount rate for an eligible household will rise by about 25 percentage points. More than half of the total discounts, 59.5%, will be given at the highest discount tier, 90%.
The expansion of the discounts is expected to deduct about NIS 1.1 billion from the revenues of local authorities. The main impact will be on the weaker authorities. In authorities belonging to socio–economic cluster 1, the loss of revenue reaches 7% of the flexible budget, meaning the budget that the authority can direct to services for residents. The total discounts in the new model reach 24.8% of the flexible budget, and the loss of revenue stands at NIS 170 per resident.
Gaps are also recorded from a geographical standpoint. In the central region, the rate of discounts out of the flexible budget remains mostly single–digit, while in the Nazareth and Acre sub–districts, an increase of about 10 percentage points was recorded following the change.
A significant part of the benefit also reaches the middle deciles. While in the first decile the eligibility rate remains around 90%, in the 2nd and 3rd deciles it rose from 51% to 64%. An increase was also recorded in the 4th to 6th deciles, from 18% to 20%.
One of the reasons for this is that the way income is calculated excludes several National Insurance allowances, including child, old age, survivors, and disabled child allowances. Thus, households can enter a high discount tier, even though a higher income is attributed to them for the purpose of division into income deciles.
Gaps are also recorded between population groups. In the Haredi society, the eligibility rate is the highest. In the old model, 60% of Haredi households were eligible for a discount, and in the new model, the rate rises to 65%. The average discount for a Haredi household stands at about NIS 4,600. In Arab society, the largest increase in the eligibility rate was recorded, of about 7 percentage points, up to about 53%.
The reform does not change the incentive mechanism for employment, and eligibility for the discount is not conditioned on going out to work or on maximizing earning capacity. The eligibility verification mechanism also remains unchanged, and continues to be based on manual submission of documents, rather than on the transfer of income data from the National Insurance Institute. The rate of utilizing eligibility today is estimated at only about 40%.
According to the calculation, any reduction of 5 percentage points in the discount rates would have saved about NIS 250 million. Reducing the qualifying income thresholds would also have reduced the scope of benefits that reach population strata that are not the weakest.