Treasury proposes 5% spending cut to tame deficit

Sources told Globes that during a meeting at the Ministry of Finance headed by the Minister of Finance yesterday, as part of a series of discussions on the state budget for 2025, the main proposal that was put forward was an overall 5% reduction in the state’s general budget. Budgets of government ministries, with a total value of 3.5 billion shekels.

This is one of several measures proposed by the Ministry's Budget Department, which aims to reduce the expected fiscal deficit for next year to 3.8% of GDP. The Budgets Department has created a bank of potential adjustments with a total value of NIS 50 billion.

Among other proposals proposed: reducing the salaries of senior managers in the public sector; Postponing the next batch of pay increases in the civil service; Reducing allocations to coalition parties by NIS 2-4 billion; Abolition of unnecessary government ministries; and other measures of efficiency in the public service. It has also been proposed to raise the value-added tax rate to 19% (it is already scheduled to rise from its current rate of 17% to 18%), but this step will likely remain a precaution in the event of an exchange of fire on the war on Israel's northern border escalates to All-out war, which requires immediate sources of funding.

According to Finance Ministry calculations, without adjustments, the fiscal deficit is likely to reach 6.2% of GDP in 2025, with additional defense spending worth NIS 20 billion. In order to reach the 3.8% target, the deficit must be reduced by 2.4% of GDP, or by NIS 50 billion.

The idea of ​​another attempt to reduce the tax benefits on advanced training funds, which are in effect a tax-exempt savings plan, was also raised, despite the political difficulties facing such a move towards the Histadrut (the general labor union in Israel). Israel), which has prevented such attempts in the past. In order to reconcile the Histadrut with such a measure, the government must first show its commitment to making cuts within itself.

In the next few days, Smotrich is expected to make a decision on the deficit target, after internal consultations and perhaps consultations with Prime Minister Benjamin Netanyahu as well. The Ministry of Finance will then carry out staff work to select the adjustment measures that will be included in the budget, in coordination with other government ministries, to plan the spending reductions specified in each of them.

Published by Globes, Israel Business News – en.globes.co.il – on June 20, 2024.

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