The Israeli newspaper Calcalist reported that Finance Minister Bezalel Smotrich is facing great political and financial pressure within the government coalition.
The newspaper pointed out that “the retained earnings budget is a crucial step that may add 9.2 billion shekels ($2.4 billion) to the 2025 budget,” but delaying its approval may lead to a loss equivalent to 0.5% of the gross domestic product.
She also explained that National Security Minister Itamar Ben Gvir threatened to block tax measures unless demands related to increasing police salaries and expanding his ministry’s budget were met.
Retained earnings tax revenue
The retained earnings tax is expected to generate revenues of up to 9.2 billion shekels ($2.4 billion) during 2025, according to Calcalist, which is essential revenue for the state budget.
However, postponing the passage of this measure until after the beginning of the fiscal year will result in losses equivalent to 0.5% of GDP due to postponement to the following year.
Pressure from religious parties
Religious parties demand a solution to the issue of recruiting ultra-Orthodox religious people, which puts the tax plan in jeopardy.
The report indicates that these positions reflect a “lack of respect” by these parties for their government partner, and the report says: “Their threat is considered an attempt to destroy the budget, which will force the minister to increase other taxes or increase the fiscal deficit.”
Crisis with Ben Gvir
Itamar Ben Gvir, leader of the Jewish Power party, refuses to support an increase in the National Insurance tax, which could add 4.6 billion shekels ($1.2 billion) annually to the state treasury, unless his demands for an increase in police salaries and an increase in his office’s budget are met.
Delaying the implementation of the National Insurance Tax until February 2025 will lead to losses of up to 500 million shekels ($130 million), according to the newspaper, which will increase pressure on the government to close the financial gap.
Tax package gaps and revenue challenges
Smotrich’s tax plan sees a decrease in expected revenues of about NIS 1.45 billion ($380 million) due to various amendments:
- 200 million shekels ($52 million) losses due to excluding work grants from the freeze.
- NIS 400 million ($104 million) losses from property tax adjustments.
- NIS 850 million ($222 million) losses due to changes in the retained earnings tax.
If the National Insurance tax is delayed, total losses will rise to about two billion shekels ($520 million).
Difficult choices and political decisions
In the face of these challenges, Smotrich may have to postpone the cancellation of the sugar and plastic utensils tax, which could add 1.5 billion shekels ($390 million) to the treasury, according to Calcalist.
The other option, according to the report, is to raise the deficit target by 0.1%, which means accepting additional losses to avoid disrupting the government coalition, which is seen as “saving it from crossing the threshold.”
Numbers under a microscope
- Potential revenue from retained earnings tax: NIS 9.2 billion ($2.4 billion).
- National Insurance tax delay losses: NIS 500 million ($130 million).
- Total decrease in tax revenues: NIS 1.45 billion ($380 million).
- Expected revenues from postponing the cancellation of taxes on sugar and plastic utensils: NIS 1.5 billion ($390 million).
The current crisis reflects the overlapping challenges between politics and the economy in Israel. While Smotrich tries to reconcile the financial challenges with the pressures of political partners, the question remains: Will the government be able to maintain its financial and political stability?
