Preparing the budget for 2025 has been a herculean task. The country is entrenched in a costly war that has gone on for more than a year.
With military spending boosted by the billions, the economy has slowed in drastic fashion due to a lack of manpower and a decrease in investments.
The cost of fighting and the absence of tens of thousands of reservists serving in Gaza and Lebanon, along with the absence of thousands of Palestinian workers from Israel for security reasons as well as most foreign workers, have damaged many sectors of the economy, including tech, construction, and agriculture.
In addition, the tourism industry, which never really recovered from the COVID pandemic, has been decimated since the beginning of the war.
All three of the main credit-rating agencies have cut their ratings on Israel this year on worries that the war could continue well into next year.
Therefore, there is no way to solve those issues in a budget, especially given the unknown factor of when the fighting will stop and rebuilding can begin. That said, there is good and bad in the 2025 budget approved by the cabinet on Friday.
The budget, set at around NIS 607.4 billion, includes a roughly NIS 40b. package of tax hikes and spending cuts to try to rein in a budget deficit now running at 8.5% of GDP.
The government also approved budget adjustments totaling about NIS 37b. Overall spending was set at NIS 744b. (almost $200b.), of which NIS 161b. will go toward debt servicing.
The budget will now begin its progress through the Knesset. According to Finance Minister Bezalel Smotrich, it’s expected to be approved in January. It must be passed by the end of March 2025, or it will trigger early elections.
“The main goal in the 2025 budget is maintaining the security of the state and achieving victory on all fronts, while maintaining the resilience of the Israeli economy,” Smotrich said in a statement.
Who voted against the budget?
Overall, 23 ministers voted in favor, seven against, and two abstained. The seven against were Itamar Ben-Gvir, Amichai Eliyahu, Yitzhak Wasserlauf, Avi Dichter, Gila Gamliel, Idit Silman, and Yoav Gallant.
There was considerable opposition within the government to the budget, and changes were inserted at the last minute to enable it to pass – including the decision to scrap the freezing of benefits paid to the elderly, people with disabilities, Holocaust survivors, and families of fallen soldiers, with the exception of child allowances.
Instead, National Insurance payments by wage earners will increase, and Value Added Tax will increase from 17% to 18%.
While there will be spending cuts across most ministries and a decision to close five ministries – although it appears unlikely that decision will be implemented – the budget includes doling out some NIS 4.1b. in coalition funds to keep the coalition partners happy.
This means the workforce in Israel, which pays National Insurance and VAT and sends family members to the army, will bear the burden.
At the same time, over NIS 4b. will go to pay for haredi (ultra-Orthodox) education, settlement expansion, and other non-consensus issues that the government’s fringe parties deem important.
National Unity chair Benny Gantz pointed to this disconnect in the government’s priorities in a post on X/Twitter.
“Coalition funds, as they are called, intended to uphold Prime Minister Netanyahu’s coalition. Anyone who supported this budget – the mark of Cain will accompany them for the rest of their life. Shame,” he wrote.
Yisrael Beytenu leader Avigdor Liberman added that the budget demonstrates that the government has not internalized the post-October 7 reality.
“While the public is struggling with the cost of living and the economic crisis, the government is once again putting the coalition before the interests of the citizens,” he told Maariv.
Although the budget does give some nods and lifelines to those most in need of funding, the government is continuing to place sectoral interests and self-preservation at the top of its national priorities.
Those priorities need to change. Israel’s working force is fighting the war, doing reserve duty, and driving the economy through tax paying. As the country’s haredi sector and security needs continue to grow, it’s creating an economically untenable situation.
The 2025 budget ignores that threat. Chances are, the ramifications will have lasting detrimental effects on our world standing.