While all eyes are on the escalating situation in the north, the Ministry of Finance is working overtime, on a tight schedule, to prepare and approve the 2025 state budget. At the end of last week, another step in the process was completed with the distribution of the draft economic arrangements bill, which will be submitted to the cabinet for approval together with the budget proposal.
Despite the security escalation with Hezbollah, the 2025 budget is being built on the premise that next year there will be no significant fighting in Lebanon and the Gaza Strip - certainly not an all-out regional war. In the coming weeks Minister of Finance Bezalel Smotrich, is supposed to present the optimistic budget proposal for cabinet approval. It is plausible that by then, depending on developments in the north, the budget proposal will no longer be relevant. A full-scale war with a potential cost of hundreds of billions of shekels will completely change the budget plans.
Is the Ministry of Finance waiting for an official declaration of war?
The Ministry of Finance is in no hurry to revise the forecasts for the budget and move to a war scenario. It began as a tactical move. The Ministry of Finance saw no point in starting budget talks, especially with the Ministry of Defense, from a problematic starting point for them when even the Ministry of Defense itself did not yet know whether there would be a war. The question that arises now, when the budget enters the final stages before cabinet approval, is at what point and under what circumstances the Ministry of Finance should change direction. Is it waiting for an official declaration of war? In the meantime, the Ministry of Finance has prepared all kinds of contingency measures should immediate sums of money be needed to finance the military campaign, such as for example raising VAT to 18.5% (it is already to rise to 18% on January 1), although Smotrich is opposed to this idea.
Even if the planned budget is not adjusted for the war, it is still better than a scenario where a war breaks out without a budget being approved. Although they received a green light from Prime Minister Benjamin Netanyahu to move forward on building the challenging budget for 2025 with its various cuts, there is still concern among Ministry of Finance officials that they delayed down the road. According to the updated schedule presented by Smotrich, the state budget will be finally approved in three readings in the Knesset at the end of December, just before the start of the new budget year.
Any further delay would result in the year opening under the continuing budget, which obliges government ministries to a monthly expenditure ceiling of 8.3% (one twelfth) of their annual expenditure in 2024. Could the IDF fight with such a limit? Would it be forced to fire only 8.3% of its shells each month, or intercept only 8.3% of the annual volume of rockets? Of course, this is not a realistic requirement. The IDF would actually continue to receive an open check from the Ministry of Finance, which would be covered retroactively after an official budget is approved.
The Finance Ministry is harshly critical of Defense Ministry "wastefulness"
The planned economic arrangements bill, which sets out reforms sought by the Ministry of Finance in passing the budget, is not directly related to preparations for the war. However, the Ministry of Finance is seeking several measures to streamline military expenditure and strengthen supervision of the defense budget.
The Ministry of Finance is harshly critical of Ministry of Defense "wastefulness" on reservists' payments and pensions and as part of the economic arrangements bill is seeking closer supervision. In the draft, it is proposed to establish an administration for the execution and control of salary and pension payments in the IDF, headed by an IDF accountant at the rank of lieutenant colonel who would be appointed by the Ministry of Finance accountant general to whom it would be subordinate. Powers would include responsibility for the management, execution and control of individual payments in the IDF and rewsponsibility for
The IDF accountant would determine the organizational structure of the IDF's accounts, and would approve decisions concerning salaries. This move is intended to increase the transparency and supervision of salary expenses and pensions, which constitute a significant share of the defense budget.
The Ministry of Finance also proposes setting up a new ministerial committee to approve the development and equipment plans of the Shin Bet and the Mossad. The committee would include the Prime Minister, Minister of Defense and Minister of Finance and would discuss defense projects of the organizations whose cost is above a certain threshold or of strategic significance. The stated purpose of the measure is to increase ministerial oversight of spending by the intelligence organizations and to prevent duplication in expensive projects. "The current situation is that only IDF projects are submitted for approval by the ministerial committee for equipping based on financial criteria, while the Mossad and Shin Bet equipment projects are not submitted for approval by any ministerial committee, even though it was already decided in cabinet decision 637 of July 2013 that security organizations also are included in the equipping committee," the draft explains.
Published by Globes, Israel business news - en.globes.co.il - on September 22, 2024.
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