Israel’s Finance Minister, Bezalel Smotrich, has called for an in-depth discussion next week to draft the 2025 state budget, describing it as “marathon discussions.” The aim is to address the strain on public finances caused by a recent war and to focus on boosting economic growth.
In a formal letter to budget chief Yogev Gradus, Smotrich scheduled the budget discussions for June 18-19. This process typically takes around two months to complete, but the Finance Minister intends to condense it into just two days. Bank of Israel Governor Amir Yaron is also expected to participate in these crucial discussions.
“I will ask you to prepare for two days of marathon discussions on Tuesday and Wednesday, 18 June 19,” said Smotrich in the letter. He emphasized the need to scrutinize data comprehensively to gain a clear understanding of the challenges that the country is facing, enabling swift and efficient responses.
The war has had a significant impact on the Israeli economy, prompting the need for fiscal responsibility and transparency in policy-making, according to Smotrich. Currently, the economy is projected to grow at around 2% this year, or zero on a per capita basis.
However, the Finance Minister has faced criticism from the public and opposition lawmakers for allowing substantial spending increases to finance the war against Palestinian Islamist group Hamas and Hezbollah in Lebanon. This additional spending has not been balanced with cutbacks in other areas or higher taxes, leading to an annual budget deficit of 7.2% of gross domestic product in May – surpassing the 6.6% target for the entire year of 2024.
In March, parliament approved an amended budget for 2024 with significant war-time financing. Smotrich also recently won a battle with Defence Minister Yoav Gallant to establish a committee to examine Israel’s defence budget. Central Bank Governor Yaron stressed that the war did not warrant a “blank check” for the military’s expenditures.
As a result of the elevated geopolitical risks, both S&P Global Ratings and Moody’s have lowered their credit ratings for Israel this year. Smotrich has criticized these credit rating cuts, asserting that they are not based on sound economic reasoning and likening them to a pessimistic “manifesto.”
The upcoming discussions on the 2025 state budget are crucial for Israel’s economic recovery and growth. It will require careful consideration of the challenges faced in the aftermath of the recent war and a strategic approach towards fiscal policy. The Finance Minister’s call for extensive talks reflects a commitment to transparency and efficiency in addressing the pressing economic concerns.