Knesset approves Israel's 2025 budget despite threats of opposition

The government has approved Finance Minister Bezalel Smotrich’s proposal for the 2025 national budget and economic plan, the Finance Ministry announced on Friday.

“This budget supports our war efforts and drives growth,” Smotrich said. “We’re providing an additional NIS 9 billion to support reservists and are implementing a comprehensive rehabilitation and development plan for the northern region, totaling approximately NIS 15 billion.”

The national budget for 2025 will be around NIS 607.4 billion. The government also approved budget adjustments totaling about NIS 37b. Overall spending was set at NIS 744b. (almost $200b.), of which NIS 161b. will go toward debt servicing.

This stabilizing budget aims to address wartime needs and respond to the Israeli economy’s significant challenges. Last week, the Finance Ministry cut the 2024 growth outlook for the second time this year to just 0.4% from an earlier estimate of 1.1%.

The government also passed measures to signal market reliability and fiscal responsibility. These steps address security and civilian needs, provide certainty for the business sector and hi-tech industry, accelerate economic growth, boost investment in the northern and western Negev regions, and support reservists.

In addition to the budget, the economic plan includes reforms such as establishing metropolitan authorities, legislation to ensure tax certainty for the hi-tech sector, and taxation on undistributed profits in holding companies and personal investment firms.

Before the final vote and the approval of the budget, the ministry announced that the 2025 budget would not include additional expenses for interior security bodies, effectively collapsing its negotiations with the National Security Ministry.

As a result, National Security Minister Itamar Ben-Gvir informed the prime minister that every Otzma Yehudit faction in the government and the Knesset would vote against the budget.

In the end, Ben-Gvir, along with Development of the Negev and Galilee and National Resilience Minister Yitzhak Wasserlauf and Heritage Minister Amichai Eliyahu from Otzma Yehudit, did vote against the budget. Culture and Sport Minister Miki Zohar (Likud) also voted against it.

This announcement came at the end of a marathon budget debate that started on Thursday to bring the 2025 budget to a vote on time.

The budget is “very complex,” Smotrich said on Thursday. He acknowledged there would be many “statements and threats to vote against” it but said agreements had been reached with most of the ministers, and “with God’s help,” the rest would also reach agreements.

“It is important that we project stability and control,” he said, so that all of Israel’s economic partners will “join forces and march Israel’s economy forward.”

Overall, 23 voted in favor, seven against, and two abstained. The seven against were Ben-Gvir, Eliyahu, Wasserlauf, Agriculture Minister Avi Dichter, Gila Gamliel, Idit Silman, and Defense Minister Yoav Gallant.

Gallant didn't indicate position

According to a source, however, Gallant claims he did not vote against the budget. He was not present during the vote and did not leave a note indicating his position. The last time he was asked about his position on the budget, on Thursday night, Gallant said he opposed it, the source said.

As of press time, the defense minister has not informed otherwise, and his office did not respond to a query on the matter.

The two who abstained were Construction and Housing Minister Yitzhak Goldknopf and Minister-without-portfolio Gideon Sa’ar.

Yisrael Beytenu leader Avigdor Liberman responded to the budget’s approval, stating it “proves how detached the Israeli government is and has not internalized the new reality after October 7,” Maariv quoted him as saying. “Instead of changing priorities, investing in growth, and strengthening the war heroes, the ministers choose to continue with petty politics.

“While the public is struggling with the cost of living and the economic crisis, the government is once again putting the coalition before the interests of the citizens,” he added. “This government is unable to deal with the economic and security challenges; the citizens of Israel deserve different leadership.”

The cost of fighting and the absence of tens of thousands of reservists serving at the front, along with the exclusion of thousands of Palestinian workers from Israel for security reasons, have weighed heavily on the main pillars of the economy, including tech, construction, and agriculture.

All three of the main credit-rating agencies have cut their ratings on Israel this year due to worries that the war could continue well into next year.

Among the measures likely to bite hardest on Israeli households, value-added tax will rise in 2025 to 18% from 17%. In addition, there will be spending cuts across most ministries.

The package will have to go to parliament for approval, which Smotrich said was expected by January. Failure to approve the budget by the end of March would trigger new elections.

Bank of Israel’s governor Prof. Amir Yaron, spoke at the state budget meeting for next year, saying the ongoing war “is placing a heavy burden on Israel’s economy and the state budget,” and that “the budget proposal presented today for government approval sets a responsible framework designed to deal with the challenges of the war and its costs to the country.”

In a separate breakaway meeting before the final vote, which included Prime Minister Benjamin Netanyahu, MK Arye Deri, and Smotrich, it was agreed to cancel the freeze on linking allowances to inflation, except for child allowances, which will remain frozen.

Instead, they decided to raise welfare payments by an equivalent amount, aiming to preserve fiscal frameworks and maintain market confidence without impacting individuals with disabilities, the elderly, victims of hostilities, bereaved parents, and other vulnerable groups.

Eliav Breuer and Eve Young contributed to this report.