7/31/2024–|Last update: 7/31/202411:37 AM (Makkah Time)
The Israeli Finance Ministry’s Budget Commissioner, Yogev Gradus, issued a stern warning to Finance Minister Bezalel Smotrich regarding the repeated postponement of discussions on the 2025 budget.
In a letter to Smotrich, Gradus stressed the need for immediate convergence measures, including spending cuts and tax increases worth NIS 30 billion ($8 billion), to prevent dire economic consequences, the Israeli business daily Globes reported in a recent report.
Negative sign for the economy
Gradus explained the potential negative impact of delaying the budget approval, saying, “Delaying the budget approval process at this time is likely to be interpreted as a negative signal to the economy and financial markets about the government’s willingness and ability to deal with the economic and financial challenges of the war.”
Gradus noted that further downgrades to Israel’s sovereign credit rating could be imminent, which would increase the cost of raising debt and put further pressure on the budget in the coming years.
The Israeli government is facing difficulty in approving and passing an organized budget in the Knesset due to internal difficulties in the coalition.
According to Grados, the government was due to approve the budget on August 15, but that deadline will not be met because the process has barely begun. The likely outcome, according to the newspaper, is that 2025 will begin without a new budget, which will lead to the country being run on a continuity budget.
strict frame
Gradus warned that working with a continuity budget “sets a rigid framework, with no flexibility for the government, and rigid spending levels that do not allow the government to spend money on many activities, even if these activities are essential and routine in normal years.”
According to the newspaper, this lack of budget flexibility is a problem from a political and economic standpoint, especially in times of war, and will complicate the management of government spending.
While a new budget could still be passed before the start of 2025, Gradus warned that the tight timeline would limit the ability to improve budget work and the flexibility needed to make complex decisions. He recommended introducing measures to freeze automatic budget increases in the coming weeks to address the problem.
Disagreements
The Finance Ministry’s work in preparing Israel’s 2025 budget is becoming increasingly complicated as senior officials try to promote a balanced financial plan to deal with the rising defense spending caused by the war on Gaza.
While politicians led by Prime Minister Benjamin Netanyahu and his economic adviser Avi Simhon are pushing for tax breaks, they are in no hurry to prepare a budget, according to the Israeli newspaper Globes.
Among the main disagreements is the increase in value-added tax from 17% to 18%, which is scheduled to take effect in January 2025. This measure, which the Knesset approved as part of the 2024 state budget last March, is considered by the Finance Ministry to be one of the main pillars of the financial plan for the coming years, according to Globes.
However, Simhon is pushing to scrap the increase, proposing instead to use the expected revenue from a plan he is promoting to distribute retained earnings to companies.
