The Ministry of Finance in Israel began preparing the budget for next year and found an expected deficit of 30 billion shekels ($8 billion) due to defense expenditures for the war on the Gaza Strip, according to what the Israeli economic newspaper Globes reported.
The newspaper indicated that the main reason for the deficit is the defense budget. Although Israeli Prime Minister Benjamin Netanyahu has not yet formed a committee to examine these allocations, there is thought that the Ministry of Defense will receive between 20 billion shekels ($5.36 billion) and 30 billion shekels ($8 billion) additional, which it requests in the 2025 budget. This gives the Ministry of Finance no choice but to reduce spending and increase revenues.
resources
The newspaper pointed out that if resources are not created to cover the deficit, which will come mainly from tax increases, the deficit will increase in 2025 to about 7% of GDP, which means double the expectations presented by the Ministry of Finance to the Israeli Knesset (Parliament) in February. Last February, about 30% more than the maximum deficit set by the Ministry, according to what the newspaper reported in a report published today.
According to the report, 2025 may be another economically lost year, with a deficit as high as in 2024, which will lead to a further deterioration in the Israeli debt-to-GDP ratio, and perhaps in the credit rating as well.
Prepare a plan
At a meeting this week, Finance Ministry Director General Shlomi Heisler instructed his senior officials to prepare a plan to submit by the end of the month to Finance Minister Bezalel Smotrich for a balanced budget (in which revenues and expenses are equal) with revenue details.
According to the newspaper, officials have so far found that 4 billion shekels ($1.07 billion) can be saved in government spending by reducing coalition funds (given to the parties that make up the government) and closing unnecessary government ministries.
But the report indicated that even if it were possible to overcome the coalition’s opposition to the cuts, this would only narrow the deficit by 13%, which means there is a remaining deficit of 26 billion shekels ($7 billion).
Taxes
It was approved to increase the value-added tax in Israel from 17% to 18% in 2025 within the 2024 budget law, but the Ministry of Finance is now considering increasing it by a greater percentage, and perhaps moving forward the start date for implementing the increase to 18% during the current year, according to Globes.
The Ministry of Finance is scheduled to introduce further measures to combat black money (not registered in the tax system), which would increase revenue collection.
