Bezalel Smotrich, Israel’s Finance Minister, has revealed that the country will cover additional military expenses through budget cuts, salary freezes, and increased revenue, rather than expanding the deficit. This announcement came as he presented a long-anticipated budget plan for the coming year.
Smotrich disclosed that the projected fiscal gap for 2025 is set to decrease to 4% of GDP, which will require budgetary adjustments amounting to at least 35 billion shekels (approximately $9.5 billion).
Speaking to journalists in occupied Jerusalem on Tuesday, Smotrich refrained from divulging specific details, citing the need to first present his proposals to Prime Minister Benjamin Netanyahu and other key ministers. However, he underscored the need for significant public sector reductions, including salary freezes for ministers, lawmakers, and civil servants.
The ongoing conflict in Gaza and the aggression towards Lebanon have escalated Israel’s military spending, leading to a severe economic downturn.
In July, Israel’s 12-month trailing deficit rose to 8.1% of GDP, prompting the country to face its first-ever credit rating downgrades.
Despite the challenging circumstances, Smotrich reiterated the government’s commitment to reducing the overall deficit to 6.6% by 2024, though this would still be among the highest deficits Israel has seen in recent decades.
While Smotrich expressed confidence that the 2025 budget would be passed by the Israeli parliament before the year ends, experts remain skeptical, citing the extensive structural work and legislative process still required.
These delays have caused concern among investors and business leaders, who warn that any pause in budget approval could further harm Israel’s economic outlook and raise the already elevated risk premium on its assets.
Smotrich also mentioned that Israel is likely to meet its budget targets for the current year unless unforeseen expenses arise from the ongoing conflict in Gaza or escalations with Hezbollah.
Following Smotrich’s statements, Tel Aviv’s major stock index dropped by 1.5% as of 5:30 p.m. local time.
The Finance Ministry’s growth forecast of 1.9% for 2024 “will likely be revised downward soon,” according to Smotrich, with Citigroup Inc. analysts suggesting a possible figure of 1.4%.
When asked whether the government would continue to allocate controversial political funds at the discretion of coalition leaders, Smotrich said such expenditures should be minimized. These funds, which totaled nearly 6 billion shekels this year, have sparked public outrage due to a significant portion being directed to religious schools and settlements in the occupied West Bank.
For months, central bank officials have urged the Finance Ministry to propose fiscal reforms to address the rising military expenditures.
Israeli Economy Under Strain: Criticism from Media
Israeli Finance Minister Bezalel Smotrich has been criticized by Israeli journalist Natan Zahavi of Maariv for his handling of the worsening economic situation in Israel amidst an 11-month multi-front conflict.
Zahavi argued that Smotrich, who has a controversial history, is oblivious to the warning signs of an impending economic collapse. He accused the minister of ignoring the concerns of investors who are fleeing the country and disregarding the warnings from credit rating agencies that have downgraded Israel’s rating.
Smotrich has also been accused of failing to recognize the decline in tourism, with hotels and tourism businesses suffering from a lack of revenue while their pleas for support go unheard.
Zahavi further criticized Smotrich for his misuse of public funds, claiming that he distributes financial benefits to his close associates while neglecting the needs of farmers whose lands have been damaged by the fires from Gaza and Hezbollah.
The journalist also highlighted the deteriorating state of Israel’s healthcare system, noting a sharp decline in the number of doctors and psychologists, cuts in rehabilitation budgets for those affected by the war, and the emigration of medical professionals seeking work abroad.
Additionally, the cost of living and airfare prices in Israel have soared, with the latter being among the highest in the world. Zahavi pointed to reports from economic departments indicating that high-tech professionals are also leaving the country in increasing numbers.
