Israel Citizens' Fund

The fund is Israel's statutory mechanism for converting finalized excess-profits levies from oil, natural gas, and other natural resources into a long-term public investment portfolio.[1] Ordinary corporate taxes and royalties paid by resource-rights holders remain in the state budget, while the fund receives the separate levy on excess profits after the amounts become final.[1][2] It functions as a long-term savings vehicle with a stabilization mandate.[7]

The fund began operating on June 1, 2022, after cumulative levy receipts exceeded the statutory threshold of NIS 1 billion.[1] By December 31, 2024, its assets had reached approximately $2.080 billion, after a nominal dollar return of about 11.5 percent during 2024.[5]

Israel's emergence as a significant natural-gas producer following major offshore discoveries prompted policy debate about how to allocate the resulting state revenues. During the 2013–2014 period, the Institute for National Security Studies identified as a core question how gas benefits should be shared between present and future generations, framing a dedicated fund as one of the principal policy responses available to the government.[8]

The fiscal framework underpinning the fund was laid by the Sheshinsky Committee, established in 2010 by Finance Minister Yuval Steinitz to determine how gas profits should be divided between the state and resource companies.[8] Its recommendations were enshrined in the Petroleum Profits Taxation Law of 2011 — later broadened and renamed the Taxation of Profits from Natural Resources Law — which imposed a levy on excess profits after a company had recovered its investment plus a legally defined return.[1] The levy rate begins at 20 percent and rises progressively to 60 percent depending on the level of excess profits; a 2015 amendment extended the law's scope to cover additional resources, including minerals extracted from the Dead Sea.[1]

Ordinary corporate taxes and royalties paid by resource-rights holders flow to the state budget rather than to the fund; the fund's revenue is drawn exclusively from these excess-profits levies.[2] The Citizens of Israel Fund Law, 5774–2014, formally established the fund and set NIS 1 billion in cumulative levy receipts as the condition for the law to take effect.[1]

Although the 2014 law envisaged operations beginning in 2018, revenues accrued more slowly than originally projected, and the fund did not cross the NIS 1 billion threshold until 2022.[4] The threshold was reached primarily through 2021 gas-profit levies from the Tamar field, supplemented by earlier payments from the Ashkelon (Yam Tethys) field, bringing total accumulated levies to NIS 1.14 billion before the June 1, 2022 start date.[4]

The gap between early expectations and actual accumulation was stark: a Bank of Israel estimate had projected the fund would hold more than $4 billion by the end of 2022, whereas the reported figure at December 31, 2022 was $617.8 million.[9] The discrepancy reflects both the delayed start and the time required for levy payments to become finalized and transferred. The Tax Authority transfers collected amounts — both final and provisional — to the Finance Ministry's Accountant General; only finalized levies, together with investment gains or losses converted into foreign currency, are transferred to the fund on a quarterly basis.[4] In 2022, NIS 3.28 billion in levies were collected, but only NIS 1.59 billion of that year's collections had been finalized by the time of reporting.[4]

By January 2023, the two principal contributors to the fund's income were the Tamar gas field and ICL (Israel Chemicals), which mines Dead Sea minerals. The Leviathan and Karish gas fields had not yet reached the profitability threshold required to generate levy payments.[10]

The fund operates through four statutory institutions: a Fund Council, an Investment Committee, an Audit Committee, and a Management Department housed at the Bank of Israel.[1] A Knesset committee supervises the fund and the implementation of the governing law.[1]

The seven-member Council is chaired by the Minister of Finance — Finance Minister Betzalel Smotrich held this role during 2024 — and includes representatives of the Prime Minister's Office, the Ministry of Finance, and the Bank of Israel, as well as three public representatives.[1][5] The Council sets investment-policy principles, monitors their implementation, approves the annual allocation calculation, and oversees financial reporting and the fund's budget.[1]

The Investment Committee has five members drawn from government, the Bank of Israel, and the public.[1] Chaired by Yarom Ariav, it translates the Council's broad principles into detailed investment policy, recommends and engages external investment managers, and oversees day-to-day management.[1][5] The Audit Committee, composed of three Council members, monitors the fund's institutions for proper functioning, checks activities against Council decisions, identifies deficiencies, and recommends corrective measures.[1]

The Management Department operates as a dedicated division within the Bank of Israel, staffed by Bank employees and under the authority of the Deputy Governor.[1][3] It manages assets according to the Investment Committee's policy, engages external managers, and prepares quarterly and annual financial statements submitted to the Council.[1] The fund's institutions were established at the beginning of 2022, ahead of operations commencing in June of that year.[3]

By law, the fund's assets must be invested entirely outside Israel and only in foreign currency.[11] The Investment Committee decided against direct investment in oil and gas companies, citing both an economic rationale — avoiding concentration in assets correlated with the fund's own revenue source — and an ethical commitment to preserving a sustainable environment for future generations. Indirect exposure through exchange-traded funds (ETFs) is permitted when such companies appear in funds the portfolio otherwise holds.[1][6]

When operations began in June 2022, the initial investment policy allocated 60 percent to developed-market equities, 36.5 percent to investment-grade corporate bonds, and 3.5 percent to cash, with a stated investment horizon of 40 to 50 years.[1][6] The initial investments were made gradually, with the fund phasing into the market through 16 graduated ETF purchases of approximately NIS 70 million each over roughly four months, rather than deploying all capital at once.[6]

As the portfolio matured, the Investment Committee revised the benchmark. Toward the end of 2023, the fund approved a new benchmark of 70 percent equities and 30 percent credit, with the equity component expanded to include both developed and emerging markets, and the credit component representing global investment-grade corporate bonds.[1] In early 2024, the committee further approved expanding the corporate-bond mandate to include high-yield bonds alongside investment-grade instruments.[1] The fund does not aim to replicate its benchmark exactly, leaving room for active management and additional asset types.[1]

At year-end 2023, the reported portfolio stood at 60.1 percent equities, 37.4 percent credit, and 2.5 percent cash. The report said movement toward the new benchmark would occur gradually during 2024.[1]

The fund's assets have grown steadily since its June 2022 launch, driven by a combination of new levy deposits and investment returns. At December 31, 2022, assets stood at $617.8 million.[1] By December 31, 2023, assets had grown to $1,478.2 million, reflecting approximately $744.5 million in new levy deposits, $149.5 million in investment profit, and a $33.6 million transfer to the state budget.[1] By December 31, 2024, assets had reached approximately $2.080 billion.[5]

Investment returns have been strong in nominal U.S.-dollar terms. The fund earned a 1.2 percent return in 2022 (approximately $10 million), 17.5 percent in 2023 (approximately $149.5 million), and 11.5 percent in 2024, producing an average annual nominal return of approximately 11.7 percent since inception.[12] The 2023 return was dominated by equities, which contributed 13.9 percentage points of the 17.5 percent total — roughly 80 percent of the year's gain — with credit contributing 3.4 points and cash 0.2 points.[1] The 2024 performance was driven primarily by stocks in developed economies, which represented nearly 90 percent of the fund's equity holdings, and was particularly influenced by major U.S. technology stocks.[12]

During 2024, the fund received approximately $417 million in state revenues under the Natural Resources Profits Tax Law, compared with $744.5 million received in 2023.[5] Under the transfer system, levies enter the fund only after they become final.[4]

The fund does not retain all of its returns: the governing law provides for annual transfers to the state budget for social, economic, and educational purposes. For the first ten years of operations, the annual allocation is set at 3.5 percent of the fund's assets; thereafter, it is recalculated using the fund's average real investment return over the preceding decade and the value of its assets at the prior year-end.[1]

The allocation process involves multiple institutions. The government proposes allocations through the annual budget process; the Knesset committee supervising the fund discusses each proposal before the full Knesset approves it.[1] In 2023, $33.589 million was transferred to the State Treasury to cover both the 2023 and 2024 fiscal-year allocations.[1] The 2025 allocation was set at NIS 189 million.[12]

The fund's founding rationale rests on two reinforcing concerns: intergenerational equity and macroeconomic stability. Because natural-gas reserves are a depleting asset, the fund is intended to ensure that citizens who have not yet been born share in the benefits of extraction, rather than allowing all proceeds to be consumed by the current generation.[1]

The second concern is the risk of "Dutch disease" — the phenomenon in which large natural-resource revenues strengthen the local currency, raise production costs, and erode the competitiveness of other export sectors.[1] Investing the fund's assets entirely outside Israel and denominating them in foreign currency directly addresses this risk by preventing the windfall from flowing into the domestic economy and appreciating the shekel.[11] Investment Committee chair Yarom Ariav described the fund's investment horizon as 40 to 50 years, reflecting the expectation that its purpose extends well beyond the productive life of current gas reservoirs.[4]

An additional rationale cited for overseas investment is protection against domestic economic crises: keeping assets in foreign markets insulates the fund from shocks originating within Israel's own economy.[7] Policy debate during the fund's formative years included an opposing view — recorded in the INSS's 2013–2014 analysis — that revenues should instead remain in Israel to support long-term domestic needs such as infrastructure, education, and reducing socioeconomic disparities.[8] Economists later raised similar objections to proposals to redirect the fund toward infrastructure spending, arguing that doing so would undermine its intergenerational-savings, macroeconomic-buffer, and Dutch-disease objectives.[9]

Several recurring debates have surrounded the fund since its conception. During the 2013–2014 policy discussions, opinion was divided over whether state gas revenues should be invested abroad — to guard against Dutch disease and insulate the fund from domestic risks — or retained in Israel to address pressing needs in infrastructure, education, and narrowing socioeconomic gaps.[8] Economists subsequently warned against proposals to redirect the fund toward domestic infrastructure, arguing that doing so would compromise its core intergenerational-savings and macroeconomic-buffer functions.[9]

Earlier projections for the fund's growth proved far too optimistic. A Bank of Israel forecast anticipated holdings exceeding $4 billion by end-2022; the actual figure was $617 million. Later forecasts of $12 billion by 2032 contrasted with an earlier estimate of $72 billion by 2037, illustrating the difficulty of predicting both gas revenues and investment returns over long horizons.[9]

The fund's 2025 annual allocation generated a public dispute over whether the designated recipients and purposes were consistent with the law's mandate of long-term social, economic, and educational objectives. Proposed uses included youth-movement facilities, mental-health facilities, school sports grounds, informal-education facilities in areas affected by the ongoing conflict, and renewable-energy projects.[13] Opposition members argued that some proposals constituted routine budget items or sectoral spending rather than genuine long-term investments. The Knesset's legal adviser was reported to have cautioned that the fund should not become a source of recurring government expenditure.[13] The committee approved the allocation after a renewed discussion and minor revisions on March 13, 2025.[13]