Israeli gov. plans to breach budget cap with $1 bil. increase

By Al Mayadeen English
Source: Israeli media
13 Sep 2024 19:42
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The Israeli Finance Ministry is projected to increase spending six-times more than it had initially planned for 2024.

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Columns of Israeli armored vehicles are parked outside the Gaza Strip in occupied Palestine, on May 8, 2024. (AP)

The Israeli economy is under immense strain due to continuous government spending that has hiked the occupation's budget deficit and forced the government into proposing a breach of its 2024 budget for the second time.

"Israel's" Finance Committee met on Thursday to discuss the increasing budget deficit; a meeting that the extremist Finance Minister Bezalel Smotrich did not attend due to a timing clash with an important security meeting.

Israeli newspaper Maariv reported that the absence of the minister was felt, as officials raised questions regarding the government's ability to finance the breach.

The proposed bill would break the spending limit by about 3.5 billion shekels, or nearly $1 billion. The bill will mainly finance the accommodations for Israeli settlers evacuated from northern occupied territories, who fled due to Hezbollah's operations in support of Gaza, and an increase in the budget for reservist occupation forces.

Finance Minister Budget Commissioner Yogev Gradus said that the proposal is "unusual," citing an environment where growth is weak and the deficit is very high.

"The high deficit has consequences - for example, a downgrade in the credit rating," Gerdos explained.

"The reductions we saw are of course mainly due to the war, but also because of the deficit. It's bad in terms of the rising cost of the debts we take on," the official added.

He also warned that this year, the Israeli government would face a deficit six times larger than the original plan, despite the fact that the budget was set while taking military operations in the occupied territories and Gaza into account.

"This year the interest costs were estimated at about 7 billion Shekels. We ended the year 2023 with a deficit 4 times larger than planned. In 2024, it will be almost 6 times the original plan."

Smotrich's 2025 budget targets lowest-earners

At the same meeting, representatives of the ministry were asked whether they are working on a budget for 2025, to which they answered that they would be ready to present a proposal to the parliamentary committee in mid-October this year.

The 2025 budget is set to shift government expenditure by freezing payments for the public sector and pension holders while increasing income tax for the lowest tax bracket.

Smotrich's plan comes after it failed to limit inflation to its expectations, as Smotrich explained that the ongoing war has created a "huge crisis in trust" between the government and settlers.

"Inflation has risen more than we wanted, but I estimate that it is a temporary matter," he claimed.

However, he did point to the fact that the lack of economic output has limited inflation in the Israeli economy, while also damaging growth.

Under Smotrich's 2025 tax plan, Israeli workers will face higher income tax rates. Those in the lowest tax bracket, earning 7,010 Shekels (approximately $1,800), will see their tax rate increase from 10% to 14%.

Union likely to thwart plan

Another measure that the ministry is considering is freezing payments for hundreds of thousands in the public sector, which would save it anywhere between 5 billion to 8 billion Shekels.

It is worth noting that such a decision would require the approval of the Histadrut General Federation of Labor, an Israeli workers union. Such a scenario is far-fetched unless the government makes concessions on budgets allocated for non-essential ministries. The Union has already agreed to cuts in their "recreation" payments in order to finance payments to Israeli reservists.

Later, the union made it clear that it would not agree to further cuts unless the government substantially axes coalition funds and reduces non-essential government ministries, Israeli newspaper Globes reported.