Finance Minister Bezalel Smotrich today presented his plan for the 2025 budget. “I pledge to do everything I can to achieve the deficit target of 4%,” Smotrich said. Smotrich outlined measures to achieve this, including freezing public sector salaries, tax brackets, allowances and pensions, increasing income tax on the lowest tax bracket, and a series of savings and simplification measures in government ministries and the civil service totaling NIS 35 billion.
“Inflation has risen more than we wanted.”
“We are in the most expensive and longest war in the history of the State of Israel, with expenses that will burden us for many years to come. The war began with a massive crisis of trust between the state and its citizens. I made a decision to rebuild trust,” he explained.
“I’ll tell you a secret. The deficit will rise next month, too. But remember, it’s not rising linearly, and in the last quarter it will converge to its current projection (6.6 percent of GDP by the end of the year). If there is any breach in the deficit this year, it will be because of unexpected defense spending. There is no such thing as losing control of spending from our point of view. I’m proud of the way we’re leading the economy, and I’m proud of the results. And the results are good.”
Smotrich then spoke about inflation, saying: “Inflation has risen more than we wanted, but I estimate that this is temporary. I do not see any inflation, and it is mainly on the supply side in real estate, for example, because there are no workers, or in fruits and vegetables, because there are no imports from Turkey. I do not think inflation will be much higher, but we may have to revise the growth forecast downward.”
Regarding the principles on which the 2025 budget was based, the Minister of Finance said: “We need security to restore the confidence of citizens and investors, and I will not save money in managing the current war, as it will take time and will require a price, but there is no other way.”
In addition to freezing the tax brackets, the Finance Ministry wants to merge the two lower income tax brackets, so that low-wage earners will be particularly affected by the higher taxes. Currently, earners earning over NIS 7,010 per month pay a 10% tax up to NIS 10,060 per month, when the income tax will rise to 14%. Under the new plan, workers will pay a 14% income tax from NIS 7,010 per month. According to Finance Ministry estimates, the move is expected to increase state revenues by NIS 2 billion annually.
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The Histadrut is expected to oppose the plan.
Another measure under consideration is a freeze on the salaries of hundreds of thousands of public sector employees, which would save NIS 5-8 billion. The Finance Ministry is expected to face strong opposition on this point from the General Labor Federation, which has already declared that it will not allow further harm to public sector workers. In the first months of the war, the Federation approved a plan under which every worker in the economy would commit to “contributing” one day of “entertainment” pay to fund the reserve budget. The Federation subsequently made it clear that it would not agree to other measures unless the government made a sharp cut in coalition funds and downsized non-essential government ministries. The recent confrontation between Smotrich and Histadrut Chairman Arnon Bar-David will certainly not make it easier for the Finance Ministry to win the Histadrut’s support in efforts to reduce the national deficit, but it may increase the pressure the Finance Minister is putting on the labor organization.
Recipients of government bonuses and pensions and minimum wage earners are also expected to be affected. The goal is to freeze, not update, the amount of payments in accordance with inflation (currently 3.2% per year) and other mechanisms stipulated by law, or in previously signed agreements. The value of these and other freezes amounts to approximately NIS 5.5 billion in savings for government spending.
This article was published in Globes, Israeli Business News – en.globes.co.il – on September 3, 2024.
© Copyright Globes Publisher Itonut (1983) Ltd., 2024.
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