Israeli Finance Minister Plans 2025 Spending Cuts to Fund Gaza War, Reports Reuters

By Steven Scheer

JERUSALEM — Israeli Finance Minister Bezalel Smotrich announced on Tuesday that the 2025 state budget will include significant spending cuts, as the government strives to balance fiscal responsibility with the financial demands of the ongoing conflict with Hamas in Gaza.

The minister is facing increasing pressure from the Bank of Israel and investors for clarity on next year’s fiscal policy. The central bank has advocated for spending reductions and tax increases or other revenue-generating measures. However, Smotrich contends that it would be inappropriate to impose tax hikes during a time of war.

At a news conference, Smotrich shared key priorities for the budget, stating it would be ready for a cabinet vote in early October, followed by an initial parliamentary vote in mid-November. The full legislative approval is expected by the end of December.

"We are engaged in the longest and most expensive war in Israel’s history, with costs ranging from 200 to 250 billion shekels," Smotrich remarked.

He emphasized the government’s commitment to the war effort, asserting, "We will not limit war spending, and we will support the war effort until victory. Without victory, there will be no safety, and without safety, there can be no economy."

Since the conflict sparked by Hamas attacks on October 7, fighting has continued with few signs of an imminent ceasefire.

To fund military operations, Smotrich intends to implement broad spending cuts of 35 billion shekels in 2025, alongside a freeze on tax rates, benefits, and wages. He forecasts a budget deficit of 4% of the gross domestic product (GDP), a reduction from a target of 6.6% of GDP for 2024.

The deficit reached 8.1% in July and is projected to increase in August, but Smotrich believes it will return to the target by year-end.

This year, three credit rating agencies downgraded Israel’s credit rating, and Smotrich has faced criticism over his economic management, particularly given modest growth of 1.2% in the second quarter.

Despite these challenges, Smotrich asserted that the economy is stronger now than before the outbreak of hostilities, noting that the stock market is performing well and high-tech investments have rebounded, while the unemployment rate stands at 2.8%.

He characterized the increase in inflation to 3.2% as a temporary issue predominantly linked to supply chain disruptions from the war.

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