The package of financial measures proposed by Israeli Finance Minister Bezalel Smotrich to narrow the financial deficit in Israel’s budget for the year 2025 is still insufficient, although the budget is scheduled to be submitted to the government for approval next Thursday, according to the Israeli economic newspaper Globes.
Israel seeks to finance its growing military expenditures in its war on the Gaza Strip and Lebanon.
Reduce expenses
According to the newspaper, of the list of spending cuts and other austerity measures worth 40 billion shekels ($10.75 billion) that the Ministry of Finance seeks to include in the budget, only 10 billion shekels ($2.86 billion) have been secured initially, while measures to provide About another 10 billion shekels are in the process of discussions, while there are major disagreements regarding the remaining amendments worth 20 billion shekels ($5.37 billion) that are still far from being resolved.
Among the main plans included by the Israeli Ministry of Finance in the draft budget, the only plans that have succeeded in securing them so far are freezing income tax brackets and tax credit points, which save 2.6 billion shekels ($698.82 million) next year, and freezing some insurance payments that save Between 3 billion shekels ($806.33 million) and 4 billion shekels ($1.07 billion).
At the same time, the Budgets Division of the Ministry of Finance is negotiating with various government ministries on cuts in public spending, to release funds that will be transferred to defense spending.
Globes quoted unnamed sources in the Ministry of Finance as saying that progress is being made with a small number of ministries, namely Health, Education, Welfare, Social Affairs, and Interior, but agreement with other ministries is still far away, and there is also no agreement on adding to the budget. Defense, as the gap between the Ministry of Finance and the army amounts to tens of billions of shekels.
Last minute
The newspaper indicates that the list of allocations that are subject to reduction or separation from the budget includes, for example, reducing tax exemptions on advanced training and pension funds, freezing old-age and disability allowances, freezing the minimum wage, and imposing a new tax on companies that do not distribute their profits, and are also being discussed. Freezing part of the due wage increase in the public sector has been favorably agreed between the Ministry of Finance and the Histadrut (Israel’s labor union), but no agreement has yet been reached.
According to the newspaper, the sources admit that the situation in which almost everything is still under discussion at this advanced stage of budget preparation is not ideal, but they express an insistence on financial adjustment measures.
According to the newspaper, the Ministry of Finance relies heavily on the negotiations that take place late at night in the Prime Minister’s Office with the partners of the ruling coalition, and in side rooms between representatives of the Ministry of Finance and representatives of other ministries, and the Ministry of Finance hopes that at the last minute it will be able to reach the goal. Reducing spending, and getting as close as possible to the level of the planned fiscal deficit of 4% of GDP, according to Smotrich’s announcement.
Even before the expected weekend skirmishes with ministries over cutting their budgets, there are disputed issues between senior officials in the Ministry of Finance and the Prime Minister’s advisors. For example, it is still unclear what will happen regarding the freeze on updates to the minimum wage and pensions. .
Many of the measures that the Finance Ministry included in the budget have not yet been agreed upon with Prime Minister Benjamin Netanyahu, and Finance Ministry officials were scheduled to meet with the Prime Minister’s economic advisor, Avi Simhon, and Yossi Sheli, Director General of the Prime Minister’s Office, last Sunday afternoon to formulate A package of spending cuts and austerity measures that will be included in the budget, but the meeting was postponed before it was held.
The newspaper indicated that the meeting was arranged without the participation of Netanyahu himself, and in normal times, Netanyahu would have led the discussion, to make decisions before the night of the government budget discussion, and because of security developments, including the counterattack on Iran, Netanyahu’s attention is mainly focused on the war, He was not scheduled to participate in the meeting.
Other battles
Among the biggest challenges facing the Israeli Ministry of Finance in saving 40 billion shekels ($10.75 billion) is obtaining approval for the proposed tax on “trapped profits,” that is, corporate profits that remain undistributed (to shareholders) for a long period of time, and this procedure alone It is supposed to generate revenues of NIS 10 billion ($2.68 billion) in 2025.
At present, there are no known objections to this measure in the government, but the main battle will likely be in the Knesset, where companies will try to enlist the support of Knesset members to abolish this provision, or water it down in committee, as the proposal upsets many business leaders, who will throw all Their weight is behind efforts to abolish it, according to the newspaper.
Another disputed issue between businessmen and the Ministry of Finance is the proposal to allow major cities (Tel Aviv, occupied Jerusalem, and Haifa) to change the way buildings are measured for the purposes of calculating the local property tax (arnona). The companies say that this would lead to a 30% increase in payments for these payments. Tax by companies and residents.
