The Ministry of Finance in Israel presented a proposal that includes a comprehensive reduction in ministries’ expenditures in next year’s budget by 5%, amounting to 3.5 billion shekels ($940.2 million), to confront the increasing expenses resulting from the ongoing war on the Gaza Strip for its ninth month.
This was reinforced by the escalation of threats on the northern front with Hezbollah, attacks launched by the Yemeni Houthi group, and threats from Iraqi factions, according to what the Israeli newspaper “Globus” reported, citing sources familiar with a meeting in the ministry.
Suggested actions
This is one of several measures proposed by the Ministry’s Budget Department, which aims to reduce next year’s expected fiscal deficit by about 3.8% of GDP.
The Budgets Department in the Ministry of Finance prepared a list of possible amendments with a total value of up to 50 billion shekels ($13.43 billion), according to the source.
Among other proposals presented:
- Reducing the salaries of senior managers in the public sector.
- Postponing the next batch of pay increases in the civil service.
- Reducing allocations to the coalition parties (the parties forming the government) by between 2 and 4 billion shekels ($534.2 million and $1 billion).
- Abolition of unnecessary ministries.
- Raising the value-added tax rate to 19% (it is scheduled to be raised from the current 17% to 18%), but the sources suggested that this step will remain a precaution in the event that fighting develops in the north with Hezbollah. To an all-out war, which requires immediate sources of funding.
According to the Ministry of Finance’s calculations, without amendments, the fiscal deficit is likely to reach 6.2% of GDP in 2025, with additional spending on defense worth 20 billion shekels ($5.4 billion). In order to reach the 3.8% target, it must be reduced. The deficit is 2.4% of GDP, or 50 billion shekels ($13.43 billion).
Confrontation with workers
According to the newspaper, the meeting raised the idea of reducing tax benefits on advanced training funds – which is a tax-exempt savings plan – despite the political difficulties facing such a step on the part of the Histadrut (the General Federation of Labor in Israel), which prevented similar attempts to implement the idea before. .
In order to reconcile the Histadrut with such a measure, the government must first show its commitment to reducing its expenditures, according to the sources.
It is expected that Israeli Finance Minister Bezalel Smotrich will make a decision in the next few days regarding the deficit target after internal consultations and perhaps consultations with his Prime Minister Benjamin Netanyahu. The Ministry of Finance will then carry out the work of employees to choose the adjustment procedures that will be applied to the budget in coordination with other ministries to plan spending cuts. specified.
Bonds
It is noteworthy that the yield on 10-year Israeli government bonds denominated in shekels recently exceeded 5% for the first time since 2011, which reflects a significant decline in demand, according to Globes.
Although the yield has since fallen to about 4.85%, the volatility in what is usually considered a stable investment indicates growing economic concerns, Globes said.
