Israeli finance minister plans spending cuts for 2025 to fund Gaza war By Reuters

By Steven Scheer

Jerusalem (Reuters) – Israeli Finance Minister Bezalel Smotrich said on Tuesday the 2025 state budget would include significant spending cuts as the government tries to balance fiscal responsibility with the need to finance Israel’s ongoing war with Hamas in Gaza.

The minister has been under pressure from the Bank of Israel and investors seeking clarity on fiscal policy for next year. The central bank has called for spending cuts and tax increases or other ways to bring in more revenue. But Smotrich said that during a war it was wrong to raise taxes.

Speaking at a news conference, Smotrich outlined only his main points in the budget formulation, which he said would be ready for a cabinet vote in early October and an initial parliamentary vote in mid-November. Full approval by lawmakers would be 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 war spending and 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, sparked by Hamas attacks on Israel, has been raging since October 7, with little sign of a short-term ceasefire.

To finance the war, Smotrich plans sweeping spending cuts of 35 billion shekels in 2025, along with a freeze on tax rates, benefits and wages. He sees a budget deficit of 4 percent of gross domestic product, down from a target of 6.6 percent of GDP in 2024.

The deficit reached 8.1 percent in July and is expected to widen further in August, but Smotrich said it would return to the 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 weak growth of 1.2 percent in the second quarter.

Smotrich said it was much stronger than before the war, the stock market was doing well and high-tech investment had recovered, with the unemployment rate at 2.8 percent.

A rise in inflation to 3.2% was temporary and mainly due to supply factors arising from the war, he said.

An economic plan accompanying the budget will include support for the high-tech sector, a rationalization of the public sector, measures to combat tax evasion and a diversification of capital sources.

($1 = 3.6805 shekels)