Knesset passes law granting tax benefits to dozens of West Bank settlements

The Knesset voted 32-23 Wednesday night in favor of a law granting extended tax benefits to dozens of West Bank settlements, amid fierce criticism that the coalition is prioritizing the measure while delaying aid for northern communities devastated by more than two years of Hezbollah attacks.

Sponsored by Religious Zionism MK Zvi Sukkot and lobbied for by party leader Finance Minister Bezalel Smotrich, the law creates a new “eastern confrontation line area” designation, expanding tax benefits to roughly 59 settlements located east of the security barrier, including Kedumim, where Smotrich lives.

Opposition lawmakers have accused Smotrich, whose party draws much of its support from the settlement movement, of using the measure to funnel state resources to his political base ahead of elections, which are to take place in September or October.

The party has been hovering around the electoral threshold for months, with polls alternately giving it the minimum four seats needed to enter the Knesset or leaving it below the cutoff.

According to the law’s explanatory notes, many West Bank settlements facing security threats are already included in the government’s national priority areas. However, unlike some communities along the Gaza and Lebanon borders, they are not eligible for tax breaks based on those security threats, which this law addresses.

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Smotrich on Thursday celebrated the law’s passage as the correction of what he called a “historic injustice,” arguing that West Bank residents had long been unfairly excluded from security-based tax benefits despite living on what he described as Israel’s front line. Now, he declared, “they are no longer second-class citizens.”

הלילה השלמנו תיקון עוול היסטורי.

הטבות המס שאישרנו במליאת הכנסת, הן צעד נוסף בדרך אל היעד של מיליון תושבים ביהודה ושומרון. זוהי לא רק ציונות במיטבה, אלא מהלך אסטרטגי שיחזק את רצועת הביטחון של ישראל, ויסכל בפועל הקמת מדינת טרור פלסטינית בלב הארץ.

מאז ממשלת הגירוש של שרון,… pic.twitter.com/GOGOdCKAWP

— בצלאל סמוטריץ' (@bezalelsm) June 4, 2026

To qualify, communities must be located more than two kilometers (1.2 miles) from the barrier and meet additional security and socioeconomic criteria, including a requirement that school transportation be conducted exclusively in bulletproof vehicles.

The law will take effect retroactively from January 2026 and remain in force through December 31, 2027. The Israel Tax Authority has estimated that the law will cost NIS 130 million ($35 million) annually.

A broader policy

The law is part of a broader government effort — accelerated under Smotrich’s tenure as finance minister — to encourage population growth in West Bank settlements through various financial incentives and government support.

The finance minister has been the architect of the government’s unprecedented expansion of the settlement enterprise, including approval of new settlements for the first time in decades, the retroactive legalization of formerly illegal settlement outposts, and a massive increase in approval for housing construction in various planning stages.

The stated goal of Smotrich and other leaders of the settlement movement is to entrench demographic and infrastructural facts on the ground in the West Bank in ways that military force alone cannot accomplish, and thereby decrease the possibility of a two-state solution with the Palestinians.

The finance minister has been candid about these ambitions, on Thursday calling the law “another step toward the goal of one million residents in Judea and Samaria” — the biblical term for the West Bank — and saying this would help prevent the establishment of “a Palestinian terror state in the heart of the country.”

Similarly, during a Knesset committee debate last week, Smotrich not only did not dispute an accusation that he was encouraging rampant settler violence aimed at dispossessing Palestinians and preventing the establishment of a Palestinian state, but appeared to express pride, boasting of leading “a great revolution in Judea and Samaria.”

The abandoned north

The vote took place amid an ongoing dispute over long-delayed assistance for northern border communities that remain under daily bombardment. According to Hebrew media reports, a long-promised rehabilitation package for the north was delayed last week due to Smotrich’s insistence that the tax benefits measure for settlements be passed first.

Sukkot’s original proposal focused exclusively on West Bank settlements, while a later version was amended to include a handful of northern communities within two kilometers of the Lebanese border, prompting opposition lawmakers and local leaders to accuse the coalition of using the needs of northern residents to build support for a measure primarily benefiting settlements.

Smotrich vetoed extending the benefits to communities within nine kilometers (5.6 miles) of the northern border, and the proposal was dropped, after northern leaders insisted on including either all communities or none.

Amid the uproar, Prime Minister Benjamin Netanyahu announced this week that the cabinet had approved an additional NIS 13 billion ($4.5 billion) to strengthen the war-battered north, following a “special meeting” of the cabinet on the subject that nearly all ministers skipped.

Northern leaders have repeatedly protested that the critical emergency aid remains frozen within the Finance Ministry — a situation worsened by subsequent budget cuts that stripped millions from the region’s active recovery funds — and their communities have accused the government of abandoning the devastated region.