Israeli 2025 State Budget Update

By Steven Scheer
JERUSALEM (Reuters) – Israeli Finance Minister Bezalel Smotrich announced on Tuesday that the parliament is expected to hold its initial vote on the delayed 2025 state budget this Sunday due to ongoing conflicts in Gaza and Lebanon.

Smotrich expressed hopes to present the budget draft to lawmakers on Wednesday, with the first of three voting sessions scheduled for December 8.

A month prior, cabinet ministers approved a spending package featuring numerous tax increases and spending cuts aimed at financing the ongoing war against Hamas in Gaza, which has stretched into its second year without a clear resolution.

Under pressure from the central bank and credit rating firms, Smotrich is compelled to promptly pass an austerity package for next year to mitigate a substantial budget deficit, currently estimated at around 8% of GDP.

The budget includes a notable 40-billion-shekel ($11 billion) proposal consisting of tax hikes and spending reductions. Increased military expenses in response to the wars have led to significant economic challenges, including a workforce shortage.

A tentative ceasefire in Lebanon provides a glimmer of hope, though concerns about renewed hostilities with Hezbollah linger.

Smotrich had previously aimed for the finalization of the 2025 budget by the end of 2024 but has since recognized this timeline is unfeasible. Consequently, the 2024 base budget will be divided into twelve parts to be allocated monthly until the 2025 budget is sanctioned.

He remarked, "I don't think it's terrible that the economy will run on a budget of 1/12 in January."

Addressing criticisms regarding the budget's delay, Smotrich defended his choice, indicating that lawmakers would have sufficient time for thorough discussions. "The reason I delayed the budget is the war. If I had brought it too early, we wouldn’t have known the situation in the northern conflict (Lebanon). Now, with clearer insights, the budget will reflect a more realistic outlook."

All three major credit-rating agencies have downgraded Israel's ratings this year, citing concerns that the ongoing conflict may extend well into the next year. If the budget lacks approval by the end of March, it will initiate new elections.

($1 = 3.6322 shekels)