Israel to face an Expensive 2025: Financial hits to face Israelis on January 1

VAT Increase and Shrinking Paychecks

Starting January 1, Israel’s value-added tax (VAT) will increase from 17% to 18%. This consumption tax is levied on most goods and services, excluding fresh produce, and will lead to higher prices for everyday items such as groceries, vehicles, and new homes. The VAT hike is expected to trickle down to consumers, impacting nearly every purchase.

In addition to the VAT increase, Israelis will face a reduction in take-home pay. Contributions to the National Insurance Institute will rise, adding between NIS 1,000 to NIS 2,000 annually to the average household's financial burden. Salaried employees will also see one additional day of annual recuperation payments deducted from their wages.

Tax Changes and Additional Costs

Income tax brackets and tax credit points will remain frozen, meaning they will not be adjusted to account for inflation. As a result, taxpayers will be left with less disposable income, and consumer prices will continue to rise. For Israel's wealthiest residents, the surtax on those earning over NIS 721,560 annually will increase from 3% to 5%, adding another financial strain on high earners.

These measures were approved by the Knesset to address the growing fiscal deficit, exacerbated by the country’s high defense spending amidst an ongoing war. However, the new year will bring even more financial pressures on Israeli households.

Utility Price Hikes

Electricity prices will rise by 3.5%, and water rates are expected to climb by 2%. These hikes are particularly burdensome for those in lower socioeconomic groups, who will feel the impact the most.

Rising Property Taxes and Municipal Increases

Property taxes, or arnona, are set by local municipalities and can be raised by up to 5.2% this year. Most cities are expected to impose this increase, with some, including Jerusalem, implementing even steeper hikes on newly constructed buildings built since January 2020.

Corporate Price Increases

In addition to the government-imposed financial changes, several companies have announced price hikes on their products, effective January 1. Food giants such as Osem-Nestlé, Strauss-Elite, and Unilever will raise prices on various goods, further stretching the budgets of Israeli consumers.

Conclusion

As Israel enters 2025, the financial strain on households will be undeniable. With a combination of tax hikes, rising utility costs, and higher consumer prices, many Israelis will face a tougher economic reality in the new year. These changes are part of a broader effort to address the country's fiscal gap, but for everyday citizens, they will result in significant financial pressure.