The Budgets Commissioner in the Ministry of Finance, Yogev Gradus, wrote to Minister of Finance Bezalel Smotrich yesterday warning against the repeated postponements of discussions on the 2025 budget. He said that convergence measures (spending cuts and/or tax hikes) amounting to NIS 30 billion needed to be instituted straightaway.
"Postponement of the process of obtaining approval for the budget at this time is liable to be interpreted as a negative signal to the economy and to the financial markets about the willingness and ability of the government to deal with the economic and fiscal challenges in the face of the war," Gradus wrote, hinting that further downgrades of Israel’s sovereign credit rating could be in the offing that would make raising debt more expensive and weigh even more on the budget in the coming years. Because of difficulties within the coalition, the government is struggling to approve an orderly budget and pass it in the Knesset.
Under the original program for the budget process, Gradus explains, the government was meant to approve the budget on August 15. This will not happen, since the process has hardly begun. The result is liable to be that 2025 will begin with no new budget, which will mean that the country will be run in accordance with a continuation budget (one twelfth of the previous year’s budget each month). This, Gradus says, "sets a rigid framework, with no discretion for the government, and rigid spending levels that do not allow the government to spend money on many activities, even though these may be elementary and routine in normal years." In other words, the government will have no budgetary discretion, which is problematic from the political and economic points of view, and will make it hard to manage government spending in wartime.
It is still not impossible to pass a new budget before the beginning of 2025, but, according to Gradus, the tight timetable will limit the ability to optimize work on the budget and the flexibility needed to make complex decisions.
"If it is decided to put back the timetable for the budget process, we believe that there is a substantial need to introduce convergence measures now," Gradus wrote, telling the minister of finance that "we recommend advancing measures to freeze automatic rises in the budget within the coming weeks." It will now be seen whether Smotrich is capable of responding to the recommendations of the Budgets Division and persuading fellow ministers to adopt fiscal balancing measures even when this is politically problematic.
Published by Globes, Israel business news - en.globes.co.il - on July 30, 2024.
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