Israeli Prime Minister Benjamin Netanyahu left his hospital bed, where he was recovering from surgery, and another coalition member, grieving for his mother, broke the traditional mourning period to participate in a dramatic vote to ensure passage of the government’s flagship reform law for the 2025 budget.
The vote to tax so-called “Trapped Profits” passed its second and third readings in the Knesset plenum by the narrowest of margins: 59-58. (Bills require three readings to become law.)
“Today, despite the difficulties, we passed budget legislation that is important for Israel’s security and economy,” said Netanyahu, who ignored his doctor’s advice against attending the vote after undergoing prostate surgery two days ago. (He returned to Jerusalem’s Hadassah Ein Kerem Hospital following the vote.)
The “Trapped Profits” Law allows the government to levy higher taxes on profits invested by companies back into the business. Those monies were taxed, but only at the corporate tax rate of 23%.
Companies could also distribute profits to shareholders, but doing so would trigger another 30% tax. Therefore, most companies invest the profits. The total amount of “trapped profits” is about 150 billion shekels ($41 billion).
The law gives companies a choice: pay a new tax of 2% per year on the trapped profits or distribute them to shareholders at a rate of 5%.
The new law is expected to raise 9.25 billion shekels ($2.5 billion) in state revenue in 2025 and 4.35 billion shekels ($1.2 billion) in subsequent years.
The “Trapped Profits” Law is one of a set of budget reforms designed to lower Israel’s budget deficit to 4.4% of gross domestic product. The current deficit is nearly 8% of GDP due to spiraling defense costs associated with the war triggered by the Hamas-led terror attacks in southern Israel on Oct. 7, 2023.
“Throughout the past year, the Minister of Finance and I have been navigating the Israeli economy in the longest and most expensive war in Israel’s history in a responsible and professional manner,” Netanyahu said in a statement on Tuesday following the vote.
“The results speak for themselves: the shekel, the stock exchange, high-tech, bonds. Israel’s economy is demonstrating resilience and trust in the policies we lead,” he added.
However, eight coalition members voted with the opposition against the law. Five of them were from the Otzma Yehudit Party led by Minister of National Security Itamar Ben-Gvir.
Three others came from the Agudat Israel faction of United Torah Judaism, a haredi party led by Yitzhak Goldknopf. (Netanyahu reportedly tried without success to convince Goldknopf to support the bill from his hospital bed.)
The ultra-Orthodox Knesset members were protesting the lack of progress on the haredi draft bill, which deals with the recruitment of yeshivah students to the military—a bill deemed too lenient on Haredim even by some coalition members.
Like the ultra-Orthodox, Ben-Gvir voted against the law not because he opposed it per se but because he wanted to express his indignation that a larger budget wasn’t allotted to the police force, which falls under his ministry.
Ben-Gvir’s party already acted on a threat not to vote with the coalition when on Dec. 16 it voted against the state budget in its initial reading. That vote narrowly passed 59-57. (The budget still requires a second and third reading.)
This time, the coalition succeeded in peeling off one Otzma Yehudit member, Almog Cohen, who voted in favor of the law.
Ben-Gvir’s actions angered several coalition members, who shouted at him as he entered the Knesset.
“What is happening today is simply a disgrace. To take the Prime Minister out of his sickbed while he is recovering from surgery and bring in a Knesset member who is sitting shiva for seven days,” Likud MK Eli Dellal posted to X, referring in the latter case to Likud MK Boaz Bismuth, who appeared in the Knesset wearing a torn black shirt as he was observing the mourning period for his mother. (According to Jewish tradition, mourners are not supposed to leave their homes during the seven-day mourning period.)
In defending himself, Ben-Gvir blamed Finance Minister Bezalel Smotrich for “dragging the prime minister we all love from his sickbed” by refusing to discuss raising the police budget. Ben-Gvir had demanded billions of shekels more for his National Security Ministry.
Ben-Gvir also said he would gladly “take fire” for the police, whom he referred to as “heroes.”
Smotrich responded, “This law targets the richest people in the country who took advantage of a loophole and avoided paying more than 50% of the tax. If Minister Ben-Gvir blocks this law, we certainly won’t be able to pay salaries to the police, and we won’t be able to finance the costs of the war.”
Netanyahu demanded coalition discipline going forward. “I expect all the members of the coalition, including Minister Ben-Gvir, to stop shaking up the coalition and endangering the existence of a right-wing government at a decisive moment in Israel’s history. It is possible and necessary to bridge the gaps in the coalition without shocking it, and we will do so.
“I back the Minister of Finance in the responsible way in which he leads the budget and the management of the Israeli economy, and I reiterate my demand that all members of the coalition support the budget,” the prime minister added.