The Finance Committee of the Knesset (Israel’s parliament) approved the allocation of 11.3 billion shekels ($3 billion) to unspecified defense projects, according to what the Israeli newspaper Globes reported.
According to this economic newspaper, in an exceptional procedure, approval of the defense budget supplement was put to an immediate vote, with the approval of all members of the committee present at the session, due to its urgent necessity.
Thus, the defense budget increased from 87.45 billion shekels ($23.52 billion) to 98.75 billion shekels ($26.56 billion), according to Globes.
The approval of the allocation came after the Finance Committee discussed – in its last session – the fiscal deficit and high inflation.
Finance representatives said they still believe next year’s deficit will be 6.6% of GDP, as stipulated in the revised budget, but it is not clear whether the current defense allocation will affect this assumption, according to Globes.
2025 forecast
Israel expects spending to exceed the permissible ceiling during the next year by about 55 billion shekels ($14.9 billion), according to the latest figures published by the Israeli Finance Ministry, which were reported by Globes the day before yesterday.
This comes in the midst of a war launched by Israel against the Gaza Strip since October 7, and the government of Prime Minister Benjamin Netanyahu has insisted on continuing to this day.
The permissible spending ceiling – under the framework law for next year – is 545 billion shekels, but the government’s obligations exceed 600 billion shekels ($162.5 billion).
Therefore, there is a need under the law for amendments to reduce spending by 55 billion shekels ($14.9 billion), and the Ministry of Finance will have to deduct it from other spending items, according to the newspaper.
Globes indicated that another option is for the government to be able to raise the spending ceiling by changing basic legislation.
Israel expects its budget to record a deficit of 5.2% of its gross domestic product next year, before it declines to 4.4% in 2026, and to 3.7% in 2027, according to what the Ministry of Finance published the latest figures for its three-year budget plan for the years between 2025-2027.
Slow growth
It is noteworthy that data from the Central Bank of Israel showed last week that the economy slowed last April after growth in the first quarter following a violent earthquake in late 2023 as a result of the war on the Gaza Strip.
A Bank of Israel statement showed that the composite economic condition index declined by about 0.15% last month, reflecting “some slowdown in economic activity.”
Following the outbreak of war in Gaza on October 7, 2023, the Israeli economy contracted by the equivalent of 21.7% on an annual basis in the last quarter of last year, before growing by 14.1% in the first quarter of this year.
