Government convenes for marathon 2025 budget debate

Israel's government convened on Thursday for a marathon debate over Finance Minister Bezalel Smotrich's proposal for the 2025 budget. 

The debate is expected to continue throughout the night, after which a vote will likely be held to approve the budget at some point on Friday.

Prime Minister Benjamin Netanyahu launched the meeting by saying that "security depends on the economy, but the economy depends on security as well."

"The IDF's strength and the strength of the State of Israel's security have come to the fore over the past year, and especially during the last month, in an unusual manner, in a manner that inspires our friends and frightens our enemies," Netanyahu said.

He praised Israel's economy, which he said was showing "unusual" durability due to the "free economy that we built here, the entrepreneurship embedded in our people, and the recruitment of our civilians." Netanyahu acknowledged that there was "no economy without limits" but did not mention the broad cuts expected in government services and tax hikes.

Smotrich said that "after victory," Israel's economy will see "fantastic returns" for years. He did not detail what "victory" entailed or when it would be achieved.

The budget was "very complex," Smotrich added. He acknowledged that there will be many "statements and threats to vote against" it, but said that agreements had been reached with most of the ministers, and "with god's help" the rest will reach agreements as well.

"It is important that we project stability and control" so that all of Israel's economic partners will "join forces and march Israel's economy forward."

National Unity chairman MK Benny Gantz said in a video statement that it was time to move "from a sectorial budget whose purpose is to safeguard the government to a responsible budget that will safeguard the state, both in security and economically.

Calling to prioritize three principles 

Gantz called for the budget to include three principles: To prioritize winning the war and funding those who serve and residents of the north and south over everything else; to create growth-oriented reforms to "return trust in the Israeli economy," including in infrastructure, transportation, IDF service, public education, and more; and setting a personal example by shutting down "unnecessary" government ministries, and ceasing the "flow of coalition funds."

"Israelis cannot be recruited if in the government [there is] business as usual," Gantz said.

The budget is expected to include an approximately NIS 40 billion cut in government spending. These include cuts to the budget base of all ministries and many more specific measures, one of which is to cancel for one year the inflation adjustment of government stipends - including for the weakest socioeconomic groups, bereaved families, holocaust survivors, and more.

Welfare Minister Yaacov Margi (Shas) threatened on Thursday that he would not support the budget if funding for his ministry was cut. According to Margi, welfare challenges grew in the past year and will continue to grow, and that welfare was a component of national security as well.

Knesset Economic Committee chairman David Bitan (Likud) also opposed the measure and said in a statement that he expected the Likud and Shas' ministers to oppose it as well.

The Aliyah and Integration Ministry on Wednesday announced its opposition to a different measure called "progressive Aliyah integration," whereby new immigrants (olim) worth over NIS 500,000 will no longer be eligible for a "benefit package" supplied by the government.

Housing Minister Yizhak Goldknopf also threatened earlier this month not to support the budget if the government did first pass a bill exempting the majority of military-age haredi men from IDF service.

However, the threat was seemingly removed after Netanyahu agreed instead earlier this week to promote a bill that will relieve non-enlisted haredim of a significant financial sanction, the cessation of state-subsidized child care.

Israel's economy suffers setbacks 

Israel's economy suffered a number of setbacks in 2024. Israel's central bank earlier this month predicted that GDP growth in 2024 will be 0.5% and 3.8% in 2025, or 1 and 0.4 percentage points lower than previous forecasts, respectively. 

On Tuesday, the finance ministry also issued a lowered prediction (0.4%/4.3%), citing the ongoing war in the north and a loss of investor trust.

In addition, Israel's credit rating drops by all three major rating agencies, with the last one, Moody's, attributing its decision in part to the Israeli leader's unwillingness to take necessary steps to counter immense war spending. 

Israel is also unlikely to meet its 6.6% budget deficit goal by the end of the year, with current estimates being closer to 8%.