Welfare, wage, and ministry cuts: Treasury unveils plan for 2025 budget

The Finance Ministry sent an outline of the 2025 budget to ministers on Wednesday ahead of a government meeting on Thursday, at which the ministry seeks to approve it.

The budget is aimed at buoying Israel’s economy through the significant challenges and costs of the Israel-Hamas War, which has seen growth projections slashed and the country’s credit rating lowered.

It will be focused on economic recovery from the damages of the war, said Finance Minister Bezalel Smotrich at a press briefing on Tuesday, adding that he anticipated that 2026 would be a year when it would be possible to roll back many of the cuts and adjustments made.

Smotrich also acknowledged that the 2025 budget might not pass before the end of the calendar year. While some tax adjustments meant to contend with the economic impacts of the war should pass by the end of November to give the tax authorities time to implement them, other parts of the budget will pass later, he said.

This would mean that the government will have to operate based on the 2024 budget in January until the 2025 budget is approved and implemented, Smotrich added.

The minister emphasized a number of principles for budget changes and cuts that are part of an attempt to cut NIS 40 billion total, including that steps taken should not be too harsh and that all steps must be those that can be passed by the government and the Knesset.

Cuts to ministries

Among the cuts and measures laid out in the ministry’s plan was a widespread freeze on government stipends, including for the weakest socioeconomic groups, bereaved families, Holocaust survivors, and more.

This freeze on stipends, which are set to update as inflation raises the cost of living, is equivalent to a cut, especially as Israel’s inflation is expected to continue to rise.

The average wage (used to calculate the minimum wage and other wages) and minimum wage will also be frozen, along with updates to tax brackets, meaning cuts will likely be felt by all Israelis.

Smotrich responded to concerns that some of the cuts will harm Israel’s most vulnerable on the socioeconomic strata by saying that budgets will be set aside and the ministry will identify those who are significantly harmed by the stipend freezes.

When addressing the issue of the haredim draft and budgets for the haredi community, Smotrich remained ambiguous. A haredi draft is seen as a measure that could lighten the load on Israel’s reservists, as the war's impact on them continues to impact the economy, especially through their absence in the workforce. 

As the haredi sector's part in Israeli society grows, the issues of the sector's low rate of IDF draft, and lower average labor productivity due to a lack of preparation in the haredi education system are seen as growing challenges to Israel’s economy.

While acknowledging that there are social implications to the ongoing illegal situation, where an increasing number of non-haredi are reporting for duty while their haredi brethren are not, the minister refrained from committing to supporting financial sanctions to discourage this situation from continuing.

The budget outline included closing five ministries, Smotrich said on Tuesday but added that this would not cut a significant amount from the budget, and he did not specify which ministries.

The plan also involves making numerous budget cuts to ministries, which may bring resistance from ministers and slow the passage of the plan in the government.

Among cuts to ministries, the budget outline included a cut to the Transport and Road Safety Ministry’s development budget, which includes infrastructure projects and support for public transportation. It also included cuts to Health Ministry budgets, such as reducing budgets for training for nurses and caregivers and support for Israel’s health funds.

Smotrich continued to highlight his plan to fight the black market and tax evasion, proposing limits on the maximum amounts allowed for cash purchases.

A day before sending the budget plan to other ministries, the Finance Ministry revised its growth projection for 2024 and 2025 on Tuesday, lowering predicted GDP growth for 2024 to 0.4% and for 2025 to 4.3%.

This revision follows the expansion of the war to the northern front, the ministry explained, saying that the previous prediction had been based on the assumption that the war’s intensity would continue to be as it was in September and that fighting would end after Q1 (the first quarter) of 2025.

The updated base case assumes that intense fighting will go on throughout most of the last quarter of 2024, which will continue to mandate a significant reserve call-up. The ministry assumed that this will be followed by a reduced call-up throughout 2025.