Netanyahu, Treasury reach compromise on war budget

Benjamin Netanyahu and Bezalel Smotrich credit: Amit Shabi Yediot Ahronot
Benjamin Netanyahu and Bezalel Smotrich credit: Amit Shabi Yediot Ahronot

VAT will rise, but parents of young children will receive the promised additional tax credit points.

The Ministry of Finance is preparing for a long night tonight, during which the government is due to vote on the revised budget for 2024. The vote was postponed last week because of disagreements between the Ministry of Finance and Prime Minister Benjamin Netanyahu, who opposed the proposal to raise the rate of VAT and to cancel a promise of additional tax credit points for parents of children aged 0-3. A compromise has now emerged whereby VAT will rise from 17% to 18% from 2025, as the Ministry of Finance wanted, and the tax credit points will be increased.

The Ministry of Finance projects the cost of financing the war at NIS 85 billion in 2024, or NIS 70 billion taking into account US aid. According to the draft revised budget to be presented to the government today by Minister of Finance Bezalel Smotrich, the ceiling for the fiscal deficit will be raised from 2.25% of GDP to 6.5% for the current year. Ministry of Finance officials have been warning over the past week that raising the deficit to such a high level carries significant risks.

In the introductory remarks to the revised budget, the Ministry of Finance states: "Without substantial measures to rein in the structural deficit and without a declining ratio of government debt to GDP, the reliability and strength of the Israeli economy are liable to be damaged in away that will lead to a continual decline in the standard of living of all citizens in the coming years."

The ministry’s document further states: "In order to reduce the fiscal damage from the war and to preserve the credibility of the Israeli economy, steps are required that will significantly reduce Israel’s structural deficit in 2024. In the medium term, starting in 2025, action must be taken to pare down the deficit such that the ratio of debt to GDP will return to a declining curve, and to send a message to the international institutions of a policy of fiscal responsibility in coping with the consequences of the war. In order to establish the credibility of these measures, action must be decided upon now both for the immediate term and the medium term."

The budget proposal stipulates a flat 3% cut in the budget base of government ministries, in order to come within the fiscal framework. Within this, the Ministry of Finance seeks to cut the number of government jobs in 2024-2025. The government’s budget for advertising, consultancy and training will also be cut.

Published by Globes, Israel business news - en.globes.co.il - on January 14, 2024.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2024.

Benjamin Netanyahu and Bezalel Smotrich credit: Amit Shabi Yediot Ahronot
Benjamin Netanyahu and Bezalel Smotrich credit: Amit Shabi Yediot Ahronot
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