Israel’s budget deficit could run into double digits by the end of 2024 and could cause international financial actors to lose trust in Israel’s economy, opposition MKs warned in a Knesset Finance Committee session on Tuesday.
The budget deficit is the difference between the government’s expenses and its income or assets and occurs when a country’s spending exceeds its income. The updated 2024 budget that passed into law in March set the budget deficit ceiling at 6.6%, but by the end of April already reached 7%. Committee chairman MK Moshe Gafni (United Torah Judaism) held the session after nine committee members, all from the opposition, demanded he address the issue.
Yesh Atid MK Vladimir Beliak, the coordinator of the opposition in the committee, pointed out at the beginning of the session that he had warned during the budget debates in March of this scenario, and criticized the government for rejecting steps to decrease its expenditures, such as closing down ministries or reducing the amount of “coalition funds” which Beliak claimed were reserved for political purposes.
“I want to know, what deficit will we reach? I have not heard from the finance minister [Bezalel Smotrich] … If we arrive at a double-digit deficit, what will the repercussions be vis-à-vis the credit rating companies? What will the repercussions be on the social services that the state can provide?” Beliak said.The deficit applies to the past 12 months, and the representative from the finance ministry’s budget department, Asaf Wexler, argued that the deficit will shrink back to within the 6.6% limit by year’s end. According to Wexler, the sharp increase in the deficit reflected months of intense fighting and economic slowdown.
It also reflected the “situation of very high uncertainty” as to when the fighting will end, and consequently to Israel’s economic performance. Wexler admitted, however, that if a war breaks out in Israel’s north, the finance ministry would likely need to update its deficit forecast.
MKs criticized other aspects of the government's performance
During the session, both Beliak and Labor MK Naama Lazimi criticized other aspects of the government’s performance on the economy. These included breaking 2023’s deficit ceiling despite updating the 2023 budget in December; the downgrade of Israel’s credit rating by both S&P and Moodys; the fact that Gafni, who is ultra-Orthodox (haredi), has refused to pass several provisions laid out in the budget to increase government income, to protest the withholding of funds he claims have not been given to the haredi school system; the uptick in the cost of living and inflation remaining high at 2.8%; and other aspects.The session also came a day after the finance ministry published an updated version of what is known as the “numerator,” which computes expected government spending three years ahead. According to the numerator, the government has already committed to spending billions more in the upcoming years than it is allowed to do by law. For example, the government has already committed to spending NIS 600 billion in 2025, higher than the legal limit of NIS 545 billion; and it committed to spend NIS 615 billion in 2026, despite a limit of NIS 569.8 billion.The result is that ahead of the 2025 budget, the state will either need to reduce its spending, which could affect its ability to provide services; or raise taxes.