Israeli Finance Minister Bezalel Smotrich attends an inauguration event for Israel’s new light rail line for the Tel Aviv metropolitan area, in Petah Tikva, Israel, Aug. 17, 2023. Photo: REUTERS/Amir Cohen

Israel’s parliament, known as the Knesset, is considering a proposal to lower the country’s capital gains tax from 25 percent to 20 percent in a bid to draw foreign investment despite the ongoing war with the Hamas terror group in Gaza.

Likud Party MK Eliyahu Revivo proposed the change to the capital gains tax during a session of the Knesset’s Finance Committee this week, a move praised by major trade groups and leading economists seeking innovative ways to give the economy a push until the war ends.

Israel, nicknamed the “startup nation,” has been generally considered a strong foreign investment bet, with industries such as high-tech and real estate having grown significantly over the past few decades.

Since the start of this year, however, investment has been down. This trend began before Hamas’ Oct. 7 massacre across southern Israel, as investment from abroad took a hit due to uncertainty over the Israeli governing coalition’s judicial reform package, which brought hundreds of thousands of Israelis onto the streets to protest. One of the results of the deep domestic divide that ensued was pushing away some foreign investment.

With the war in Gaza, which began with the Hamas atrocities last month, investment has slowed due to uncertainty surrounding business. Indeed, Israel’s business sector has been hit hard, with many finding it next to impossible to work on anything unrelated to the conflict.

Reserve duty in particular has become a major challenge for business across Israel as more than 350,000 people were called from their homes to join the war, taking them away from work — including the tech sector. In real estate, meanwhile, some of the biggest growth in recent years has been in so-called smaller “periphery cities,” places that have been impacted by the war and in some cases even evacuated.

Controversy erupted this week over a newly approved wartime budget, which some members of the Knesset railed against since not all the money was allocated to the war effort. Israeli Finance Minister Bezalel Smotrich backed his budget plan, saying there was enough money at the moment to support military matters and all other areas.

Ultimately, Smotrich’s ministry will be the one to give a green light to Revivo’s new plan, which supporters argue could help to increase investment from places such as France and the United States.

Tech has become a backbone of Israel’s economy, and a reason why even in global economic crises the Israeli economy can remain resilient. Indeed, tech has accounted for 14 percent of jobs in Israel and about a fifth of economic output. Last year, Israeli tech companies raised nearly $16 billion, the highest per capita in the world, after raising $27 billion the previous year. The tech sector also accounted for about half of Israel’s exports and 30 percent of tax revenue.

The Jewish state has consistently been among the world’s ten largest tech ecosystems in terms of funding despite being much smaller than its competitors at the top of the list.