Discussion on the budget at the Ministry of Finance and in the government are resuming. After a two-month freeze, Minister of Finance Bezalel Smotrich and senior officials of his ministry held a meeting yesterday on building the state budget for 2025.
Smotrich said at the meeting that he intended to pass a budget on the basis of a fairly restrained fiscal deficit of up to 4% of GDP. Some of those at the meeting wondered whether Smotrich had coordinated this with Prime Minister Benjamin Netanyahu, in whose circle there has been talk of an "easy" budget on the basis of a much higher deficit. Smotrich is due to hold a press conference at 2 pm today to present his 2025 budget plans.
Meeting a 4% of GDP deficit target will require painful measures that can be implemented quickly. To provide certainty to the financial markets and to pass the budget within the short time that remains, the Ministry of Finance will find it hard to introduce large, complex reforms, and will probably have to make do with well-worn measures. These include freezing income tax brackets, a freeze on public sector pay, freezing the minimum wage, a surtax on undistributed company profits, and abolishing the exemption from VAT for tourists, although, given the current condition of Israel’s tourist industry, this measure is unlikely to much enrich the state’s coffers next year.
"Globes" has also learned that later this week, probably on Thursday, Smotrich and senior Ministry of Finance officials will have a meeting with Netanyahu to make decisions on next year’s budget framework and the austerity measures that will be required in order to finance the costs of the war.
Governor of the Bank of Israel Amir Yaron, Ministry of Finance Budgets Commissioner Yogev Gradus, and Deputy Attorney General Meir Levin have all warned of the possible consequences of failing to pass the 2025 budget in good time. This week’s meeting between Smotrich and Netanyahu will probably determine the fate of the budget, and could even affect the decisions of the international rating agencies, which have so far held back on further downgrades of their ratings for Israel. The 2025 budget was supposed to have been approved by the government by now, in advance of first reading in the Knesset.
Some government sources are not convinced that Netanyahu really means to pass a budget, despite the scheduled meetings. There are those who wonder whether those are not intended to broadcast stability and to gain time, until Netanyahu decides whether he wants to call an election or not.
Published by Globes, Israel business news - en.globes.co.il - on September 3, 2024.
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