Israel’s Tax Authority planning and economics division took a deep look into the finances of Israelis and found what it called a hidden trove. Wealth among the top income deciles is 83% higher than the amount reported by the Central Bureau of Statistics, mainly because the bureau’s method relies on ongoing income and misses one time windfalls such as exits.
Tax Authority data for 2014 to 2022 show a real increase of about 38% in average income, driven largely by a jump of about 50% in capital income. Income from work rose by 36% in real terms. Unlike in countries such as the United States, the boom was spread across all deciles. Even so, the top quintile, the ninth and 10th deciles, receives about two thirds of all individual income in Israel, and the top decile alone accounts for 45% of total income.
The report notes a modest improvement at the bottom. The share of people with no income fell by about 3 percentage points, from 17% to about 14%, slightly boosting the lowest deciles and narrowing inequality. Still, inequality is sharpest at the top. The two highest percentiles generate about half of the top decile’s income. The poorest half of Israelis, the lowest five deciles, holds only 11% of overall income.
In 2022, about 82% of income came from earned sources, including wages, self employment, pensions and benefits, while 17% came from capital. But around 82% of all capital income is concentrated in the top decile. About two thirds of capital income in that decile comes from the top percentile, which alone receives about 58% of all capital income. The top one thousandth of households, 0.1%, holds about a third of Israel’s wealth, and the top one ten thousandth, 0.01%, holds 14% of the country’s 132.7 billion shekels ($41.0 billion) in capital income. The top one thousandth’s share of wealth is 320 times its share of the population, and the top one ten thousandth’s share is about 1,400 times its population share.
The Tax Authority also found that while capital income makes up a single digit share of income in every other decile, in the top decile it is about one-third of total income. In the top percentile, capital income reaches roughly two thirds.
The biggest gap with Central Bureau of Statistics data is again at the top. The Tax Authority says the average monthly income of an individual in the top decile in 2022 was about 68,000 shekels ($21,000), including about 24,000 shekels ($7,400) from capital income. The bureau reported capital income of only 5,200 shekels ($1,600) per household in the top decile.
That gap affects how inequality is measured, how tax policy is set and how wealth is understood. The authority says most of its findings align closely with the bureau’s data, but the difference in the top decile is large. For example, the bureau put average top decile household income at 66,000 shekels ($20,400) a month, compared with 94,000 shekels ($29,000) in the Tax Authority data. The authority said the disparity shows the need for asset surveys and deeper research to capture wealth that standard income based methods miss.
Officials acknowledged they still cannot see the full picture because there is no comprehensive data on inheritances, land holdings, some rental income and other assets, creating what they estimate could be a miss of up to 30 billion shekels ($9.3 billion).
About 20% of Israelis pay 80% of direct taxes
The report also examines taxation. It says the wealthiest 20% of Israelis, the ninth and 10th deciles, pay about 80% of direct taxes. The 40,000 richest Israelis pay nearly two thirds of all direct taxes, excluding corporate tax and indirect taxes such as value added tax. By contrast, the poorest half of the population pays about 3% of income tax. The lowest 70% of earners, deciles one through seven, pay 11% of direct taxes. For half the public, income is so low that they pay little or no income tax.
Even after tax benefits and credits, the effective direct tax rate, direct tax paid divided by gross income, rose in real terms over the decade reviewed, from 19% to 20.6%. The system is highly progressive. The poorest half pays an effective income tax rate of up to 6%. The highest effective tax burden is in the upper deciles. The top decile pays about a quarter of its income in direct taxes, and the ninth decile pays nearly 18%.
The report returns to the issue of hidden wealth. While the average effective income tax rate in the top decile is about 25%, the rate falls as incomes rise into the top one thousandth and top one ten thousandth. The authority says one reason is that the missing wealth is not captured in Central Bureau of Statistics data. It estimates that this hole, about 5 to 8 billion shekels ($1.5 to $2.5 billion), helps explain why it recently backed two new taxes aimed at the very richest, a capital based surtax and a levy on undistributed profits.
The data also highlight the sensitivity required in taxing capital. The authority warns that if capital taxes rise too sharply, Israelis may be tempted to register companies abroad, and domestic political instability could accelerate that trend. It also notes that the progressive tax structure steepens quickly. Once monthly income approaches about 16,500 shekels ($5,100), marginal rates jump. From annual income of 200,000 shekels ($61,700), the marginal rate rises to 43%, which officials say can reduce incentives to work more hours.
The Tax Authority said this is why it advised the finance minister to widen the tax brackets starting at that income level as part of the 2026 budget, effectively a targeted tax cut.