Israeli Finance Minister Bezalel Smotrich said on Tuesday that the 2025 state budget will feature deep spending cuts, as the government seeks to balance fiscal responsibility with the need to fund Israel’s ongoing war with Hamas in Gaza.
The minister is under pressure from the Bank of Israel and investors, who want clarity on fiscal policy for next year. The central bank is demanding spending cuts and tax hikes or other ways to bring in more revenue. But Smotrich has said it was wrong to raise taxes during the war.
Speaking at a news conference, Smotrich only outlined his main focus points when preparing the budget, which he said would be ready for a cabinet vote in early October and a preliminary parliamentary vote in mid-November. Full approval by lawmakers would come at the end of December, he said.
“We are in the longest and most expensive war in Israel’s history, costing between 200 and 250 billion shekels ($54-68 billion),” Smotrich said.
“We are not limiting spending on the war and we will support the war effort until victory,” he said. “Without victory there will be no security and without security there will be no economy.”
The war, which began with Hamas attacks on Israel, has been going on since October 7 with no signs of a ceasefire in the near future.
To finance the war, Smotrich plans sweeping spending cuts of 35 billion shekels in 2025, as well as reductions in tax rates, benefits and salaries. He sees a budget deficit of 4% of GDP, lower than the 6.6% of GDP target in 2024.
The deficit reached 8.1% in July and is expected to widen further in August, but Smotrich said it would be back on target by the end of the year.
Three credit rating agencies have downgraded Israel’s credit rating this year and Smotrich has also been accused of mismanaging the economy, with meager growth of 1.2% in the second quarter.
Smotrich said the shekel is stronger than it was before the war, the stock market is doing well and high-tech investment has improved, and the unemployment rate is at 2.8%.
He said the 3.2% rise in inflation was temporary and was mainly due to supply side factors resulting from the war.
The economic plan presented along with the budget will include support for the high-technology sector, streamlining of the public sector, measures to combat tax evasion and diversification of capital sources.
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