Basic Law: The State Economy חוק יסוד: משק המדינה
Establishes the framework for state finances: the annual budget must be set by law, taxes and compulsory payments may be imposed only by or under statute, and the state's monetary and property dealings are subject to legislative oversight. The constitutional anchor for the principle 'no taxation without legislation,' anchoring Israel's reputation as a rule-of-law democracy in fiscal matters.
Key provisions
- The State Budget is set by an annual law that the government must lay before the Knesset within a statutory window before the fiscal year begins
- Taxes, compulsory loans, and fees may be imposed and varied only by or under law
- Sets rules for state borrowing, currency issuance, and management of state property
- Subjects the state's economic affairs to the inspection of the State Comptroller
- Provides for two-year budgets in defined circumstances (added 2009 as a temporary measure, repeatedly extended)
Context
Passed on 21 July 1975 by the Eighth Knesset against the backdrop of post-Yom Kippur War economic strain and the Ben-Shahar tax reform that introduced modern progressive income tax. It codified the Knesset's exclusive 'power of the purse' against an executive that had often resorted to ad-hoc levies, reinforcing democratic accountability in fiscal policy.
Notable amendments
- 1982, 1983: Early amendments refining budget procedures and Comptroller oversight
- 2009: Permitted two-year budgets as a temporary ordinance, renewed repeatedly through subsequent Knessets (used for 2009-10, 2011-12, 2013-14, 2017-18 and 2019-20) to provide fiscal stability across periods of political and economic turbulence
- Subsequent amendments tightening Knesset Finance Committee approval over tax regulations and reinforcing legislative oversight of executive fiscal action
Today
Remained fully operative through the demanding 2024-2026 budget cycles shaped by the multi-front war that began with the October 7, 2023 Hamas massacre; the Knesset approved a record 2025 budget, the largest in Israeli history, with major increases for defense and civilian war recovery, demonstrating Israel's institutional resilience under wartime conditions. The Supreme Court has invoked the law to require statutory authority for tax measures imposed by regulation.
Why it matters
Translates the bedrock democratic principle of 'no taxation without representation' into Israeli law and is the basis on which courts police the executive's fiscal power, a quiet but essential pillar of Israel's standing as a stable, rule-of-law democracy in a turbulent region.
Cite this page
Basic Law: The State Economy (1975). The State of Israel. https://thestateofisrael.com/basic-law/the-state-economy