The Israeli Ministry of Finance is preparing and approving the 2025 budget, according to a tight timetable, while attention is focused on the escalating situation in the north and the risk of a real confrontation between the Israeli army and the Lebanese Hezbollah.
A few days ago, the draft economic arrangements law was distributed, and it will be presented to the Council of Ministers for approval, along with the budget proposal.
Despite the security escalation with Hezbollah, the 2025 budget is based on the assumption that next year there will be no major fighting in Lebanon and the Gaza Strip and certainly excludes a comprehensive regional war, according to the Israeli economic newspaper Globes.
Finance Minister Bezalel Smotrich is scheduled to present his optimistic budget proposal for approval by the cabinet in the coming weeks.
It is likely that by that time, depending on developments in the north, the budget proposal will no longer be appropriate, as a comprehensive war with a potential cost of hundreds of billions of shekels would completely change the budget plans.
Is the Ministry of Finance waiting for an official declaration of war?
According to the Israeli newspaper, the Israeli Ministry of Finance is in no hurry to review its budget forecasts and move to a war scenario, as it has begun preparing the budget as a tactical step.
The Ministry of Finance saw no point in starting budget discussions – especially with the Ministry of Defense – from a starting point that was problematic for it, since the Ministry of Defense itself did not yet know whether war would break out or not.
According to the newspaper, the question that arises now, as the budget enters the final stages before the approval of the Council of Ministers, is at what point and under what circumstances should the Ministry of Finance change its direction? Should it wait for an official declaration of war?
Meanwhile, the Finance Ministry has prepared all sorts of emergency measures in case immediate funds are needed to finance the military campaign (against Hezbollah in the north), such as raising the value-added tax to 18.5% (it is already scheduled to rise to 18% on January 1), despite the Finance Minister’s opposition to this idea.
Difficult balance
The newspaper added in a report that even if the planned budget for the war is not amended, it is still better than the scenario of war breaking out without approving the budget.
Although the Finance Ministry received the green light from the prime minister to proceed with the “tough” budget for 2025 with its various cuts, there is concern among Finance Ministry officials that they are late in preparing it, according to the newspaper.
According to the updated timetable presented by Smotrich, the state budget will be approved in three readings in the Knesset at the end of December, before the start of the new fiscal year.
Globes reported that any further delay in preparing the budget would lead to entering the new year according to the 2024 budget, which means obligating ministries to a monthly spending ceiling of 8.3% (1/12) of the total approved last year.
The newspaper wondered, can the Israeli army fight with such a ceiling? Will it have to fire only 8.3% of its missiles each month, or intercept only 8.3% of the annual volume of missiles?
She pointed out that this is not a realistic demand, and that the open budget of the Israeli army will continue, which will be covered retroactively after the approval of the official budget.
Criticism of the Ministry of Defense’s extravagance
The planned Economic Arrangements Bill, which outlines the reforms the Finance Ministry seeks to pass in the budget, is not directly related to preparations for war, however, the Finance Ministry is seeking several measures to streamline military spending and strengthen oversight of the defense budget.
According to the newspaper, the Ministry of Finance is strongly critical of the Ministry of Defense’s “extravagance” in paying salaries and pensions to reserve personnel, and as part of the draft economic arrangements law, it is seeking stricter oversight.
The draft law proposes establishing an administration to implement and monitor salaries and pensions in the Israeli army, headed by an accountant with the rank of lieutenant colonel who will be appointed by the Accountant General of the Ministry of Finance, to whom he will be subordinate.
The army accountant determines the organizational structure of the IDF’s accounts and approves decisions regarding salaries. This step aims to increase transparency and oversight of salaries and pension expenditures, which constitute a large portion of the defense budget.
The Finance Ministry also proposes forming a new ministerial committee to approve development and equipment plans for the Shin Bet and Mossad, which will include the prime minister and the defense and finance ministers. It will discuss defense projects for organizations whose costs exceed a certain ceiling or are of strategic importance.
The measure, according to the announcement, aims to increase ministerial oversight of spending by intelligence agencies and prevent duplication in costly projects.
According to the draft proposal, “The current situation is that only IDF projects are presented for approval by the ministerial committee… while Mossad and Shin Bet projects are not presented for approval by any ministerial committee, even though it was already decided in Cabinet Resolution 637 of July 2013 that the security organizations would also be included in the preparation committee.”
