The Knesset Finance Committee on Sunday approved the 2025 State Budget, the largest in Israel’s history, after a 13-hour debate. It will head to the Knesset plenum for a final vote on Monday at 8:00 p.m. local time.
The debate is expected to continue through the night until the budget’s final approval, which is expected on Tuesday afternoon.
Israel’s parliament has until March 31 to pass a budget and prevent the government’s collapse. However, there is little danger of such an outcome as Israeli Prime Minister Benjamin Netanyahu has bolstered his coalition with the addition of Gideon Sa’ar’s New Hope Party and the recent re-addition of Itamar Ben-Gvir’s Otzma Yehudit Party.
Between 64 to 67 Knesset members in the 120-member Knesset are expected to support the budget, Ynet reported.
“This is not an easy budget, in a difficult period. We did everything we could and ultimately succeeded in reducing many of the taxes that the Treasury had proposed, thereby easing the burden on citizens,” said Finance Committee chairman Moshe Gafni.
“The reality we are living in is extremely difficult, and the responsibility shown by the members is commendable,” he added.
The budget will be 620 billion shekels ($166.6 billion), with about 110 billion shekels ($29.5 billion) going to defense, the highest ever.
The Education Ministry’s budget will be the second highest at nearly 92.5 billion shekels ($24.8 billion).
The Health Ministry budget will stay stable at about 60 billion shekels ($16.1 billion).
Although Finance Minister Bezalel Smotrich had pledged to do his best to meet a proposed 4% deficit target, but that number has since inched upwards to 4.7%, with the possibility of rising to 4.9%. With the war’s resumption, the deficit could head north of 5%, Ynet reported.
Some of the budget measures have already come into effect, most notably the Value-Added Tax (VAT) rate rose by one percentage point, from 17% to 18% on Jan. 1.
The tax applies to most products and services, excluding fruits and vegetables and purchases in the resort city of Eilat, a duty-free zone.
It is part of the government’s effort to rein in a budget deficit that mushroomed to 8.1% of GDP due to the war.
Smotrich had hoped the budget would be approved by the end of 2024, but political infighting among coalition partners delayed the final vote.
It was not clear when the full parliament would vote on the budget, which features a series of tax hikes to prevent the deficit – which was 6.8% in 2024 and led to credit rating downgrades—from becoming unsustainable while Israel finances its military conflicts.
Opposition member Vladimir Beliak (Yesh Atid) called the budget “socially and morally disastrous.”
“Credit rating agencies are reviewing the budget and are considering another downgrade for Israel. If the finance minister’s policies continue, there is a high likelihood that taxes will need to be raised again by the end of the year,” he said.