The matter is simple. These NGO's seek to gain political power that ought to be in the hands of the electorate. They seek the means to influence Israeli politics in ways only the electorate should. If they can't win an election, they shouldn't have the influence of those who can. It's as simple as that, and THAT is why this law is important. It does not undermine democracy, it supports it. Nobody's going to put those who want to undermine the state in jail for voicing their opinions - but there is no reason for the state to subsidize these organizations by giving them tax exempt status.
U.S. asks Uzbekistan to join anti-ISIS coalition (Reuters)
from the article: Netanyahu is working to limit free speech in Israel, Labor leader says