Israeli Finance Minister Bezalel Smotrich on Tuesday presented his 2025 state budget proposal at a press conference in Jerusalem.
The budget includes 200 billion shekels ($54 billion) for security and the war effort, 20 billion shekels ($5.4 billion) for public reconstruction, a target deficit of 4% of GDP and cuts of 35 billion shekels ($9.5 billion) to reach it.
“We are in the most expensive and longest war in the history of the State of Israel, with expenditure that will weigh on us for many years to come,” said Smotrich.
“The war began with a huge crisis in trust between the state and its citizens. I made a decision to rebuild trust,” he said. “I will not take money from managing the present war. It will take time and it will exact a price, but there is no other way.”
Pledging to do his best to meet the proposed 4% deficit target, Smotrich set out measures such as freezing public-sector salaries and benefits, cuts to government office budgets and to the National Insurance Institute of Israel, along with other streamlining measures.
His plan also calls for freezing tax rates and merging the two lowest income tax brackets, which the Finance Ministry estimates would grow state revenues by 2 billion shekels ($540 million) per year.
At the end of July 2024, the fiscal deficit mushroomed to 8.1% of GDP due to the war. Smotrich said he expected the deficit to drop to 6.6% by the end of the year. Instituting the measures outlined would reduce it to the 4% target.
Smotrich also said that he and his fellow legislators would be the first to feel the pinch of budget cuts, announcing a “complete freeze of the salaries of ministers, Knesset members and senior officials.”
“The personal example we will set in the government regarding its budgets and employees will be such that everyone will feel OK with it, and that they are not being taken advantage of,” he said.
The proposed budget quickly came in for criticism, however, with the NII, the equivalent of the Social Security Administration in the United States, saying, “The National Insurance Institute is opposed to harm to allowances for the disabled, elderly, nursing and unemployed. The cuts should be made from other sources and not on the backs of the weak in society.”
Israeli financial news site Globes reported that freezing pay for hundreds of thousands of public sector employees to save up to 8 billion shekels ($2 billion) is likely to meet “strenuous opposition” from the Histadrut labor federation, “which has already announced that it will not allow further harm to public workers.”
Smotrich also wants to abolish the VAT (value-added tax) for tourists. This, too, will likely meet opposition. When Smotrich tried introducing it in the previous budget, he was forced to back down after encountering headwinds from hoteliers and Tourism Minister Haim Katz.
Globes noted that in any case it’s not clear that canceling the VAT for tourists would generate much income given the current state of Israeli tourism.
