Smotrich advances extra-budgetary war funds despite Finance min professional warning

An NIS 3.4 billion increase in the 2024 budget was approved by the government Sunday, after being advanced by Finance Minister Bezalel Smotrich.

The nearly 2.7 billion of the funding is primarily for extended housing grants and other social services grants for evacuees from the North through the end of the year.

It also includes NIS 200 million for reservists, repaying flat cuts to ministry budgets and more.

This funding is necessary due to the war continuing for much longer than expected, the ministry said, adding that the expectation was the evacuees from the North would not need funding for as long as they have.

The minister’s office said that this spending will not increase the deficit expected for 2024, because of increased income from taxes.

The ministry said that it will work to advance the amendments to the law needed to enlarge the budget for Knesset approval as soon as possible.

The decision to enlarge the budget follows a public conflict between Smotrich and Yogev Gradus, the head of the Finance Ministry’s Budget Department, who has urged Smotrich not to breach the 2024 budget.

Smotrich's letter

On Tuesday, Smotrich told Gradus in a letter that if he did not agree with his policy, he was welcome to resign.

The letter came as a response to a letter from Gardos earlier on Tuesday, reportedly urging Smotrich not to overspend the 2024 budget while making necessary adaptations to the upcoming 2025 budget.

Smotrich said Sunday that the funding is not only a policy option, it is a necessity and fulfills the obligation of the country to its citizens.

“We are behaving in a financially responsible way and will continue to do so and make sure that all Israeli citizens get the maximum economic and security support until victory,” he said.

The dispute with Gradus occurred as Israel’s economic leadership faced criticism for its response to the economic impacts of the war.

Smotrich has been widely criticized for apparently failing to advance talks on the 2025 budget and passing measures intended to handle the economic fallout of the Israel-Hamas war, such as a 1% VAT increase.

Earlier this month, big three ratings company Fitch Ratings dropped Israel’s credit rating and maintained its negative outlook, citing the government’s apparent inability to pass necessary economic measures as part of the considerations behind the ratings drop.

There was also widespread criticism of the priorities displayed in a March update to the 2024 budget which was meant to handle the costs of the war.

Coalition funds were only partially cut in this update, and ministries seen as unnecessary coalition ministries were not closed to fund war costs.

“The head of the budget department is among a small group of senior officials in central government offices who are trying with all their might to manage the civil service responsibly and wisely during this difficult time,” said former Institute for National Security Studies head and economics professor, Manuel Trajtenberg, commenting on Smotrich’s offer that Gradus resign.

Ben-Gurion University of the Negev’s Professor Emeritus Moshe Justman emphasized that it is Gradus’s responsibility to help enact Smortich’s policy, giving context to Smotrich’s harsh letter.

“The responsibility for the function of the Finance Ministry is laid on the shoulders of the finance minister and the government, and the role of the professional echelon is to advise on creating police and help enact the chosen policy,” he said.

Ben-Gurion University Senior Lecturer Dr. David Lagziel warned against irresponsible handling of the budget, saying that there is sweeping agreement amongst economists that a responsible budget is needed to handle the costs of the war.

“A policy that calls for opening the 2024 budget again and again or engineering a two-year budget for the next two years will hurt Israel’s economy,” he said.

“There is real danger for a quick deterioration of Israel’s economy and an additional drop of the credit rating.”

He emphasized the need for responsible, professional work to reduce the risk to Israel’s economy. Saying that the work of the Bank of Israel Governor, Gradus, and other senior Finance ministry officials has been professional and responsible.

Eliav Breuer contributed to this report.