Israel budget: Cabinet set to approve wartime austerity budget
Israeli cabinet ministers voted on October 31st on a long-awaited austerity budget that reflects the current wartime climate in the country, according to Reuters.
The 2025 budget will rein in spending and raise a host of taxes to pay for Israel’s ongoing wars.
Israeli coffers are billions of shekels lighter this year due to unparalleled spending on military equipment, army reserve mobilisation and compensation to impacted citizens.
Before the budget vote, Israel’s Prime Minister Benjamin Netanyahu said: “Our security also depends on the economy. We cannot have a strong military if we have no way of financing it.”
“There is no economy without restrictions. If you give to one place, you unfortunately need to take from another.”
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Since the October 7th attack by Palestinian Hamas fighters, the Israeli economy has taken a downturn.
Zero growth combined with supply issues pushing up inflation has dramatically increased the cost of living for its citizens.
Israel’s credit rating has dropped in all three major credit ratings, raising financing costs and forcing the Central Bank to keep interest rates high.
Tightening the already anxious Israeli pocket, the 2025 budget includes some 40 billion shekels ($10.8bn) of proposed spending reductions and tax increases.
The austerity reflects the government’s aim of reducing the budget deficit from 8.5 percent of gross domestic product (GDP) – above the 2024 target of 6.6 percent – to four percent of GDP.
Value added tax will also rise one percent to 18 percent.
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While Finance Minister Bezalel Smotrich said the army will not have an “unlimited budget”, considerable 102 billion shekels ($27.2bn) will be spent on the military next year.
In all, budgetary spending will be 744 billion shekels ($198.5bn) in 2025, with 161 billion shekels ($43bn) going to service the country’s debt.
Smotrich said: “It is important that we transmit stability and control and a hand on the wheel of the economy so that all our partners in the economy […] will move the economy forward.”
“We are in the longest and most expensive war in Israel’s history. In the last year we have demonstrated an amazing ability to withstand all the efforts of the war and its costs. There is great resilience in the economy.”
According to the Reuters, Israel’s economy is forecast to grow 0.4 percent in 2024 and 4.3 per cent in 2025.
After the cabinet approval, the budget will head to parliament for an initial vote. Smotrich expects final parliamentary approval in January.
Failure to pass the budget by 31 March, 2025 would trigger new elections.
Reuters
