Israel's Wartime Economic Challenge: A Strain on Resources and Resilience

The Israeli cabinet has approved a wartime budget with tax increases and spending cuts to fund an ongoing conflict. Military spending is up, slowing the economy. The 2025 budget aims to maintain security and stabilize the economy, pending parliamentary approval. Economic growth forecasts are bleak, indicating deep fiscal challenges.

The Israeli cabinet has greenlit a wartime budget package proposed in response to a protracted conflict. This budget notably features tax hikes and spending cuts designed to finance military efforts now in their second year, as the Israeli economy grapples with an unprecedented slowdown.

Military expenditure has surged by billions, driven by extensive troop deployments in Gaza and Lebanon. The economic growth forecast for 2024 has been slashed again, marking it at a mere 0.4%, as thousands of Israeli reservists have been called to the frontlines and Palestinian workers excluded due to security concerns.

Amid these economic pressures, Finance Minister Bezalel Smotrich emphasized the importance of security and economic resilience in the 2025 budget. Valued at approximately 40 billion shekels, this package aims to reduce the deficit, now at 8.5% of GDP. Anticipated tax hikes, including an increase in value-added tax, and ministry spending cuts face parliamentary scrutiny, with approval anticipated by January to avoid triggering early elections.

(With inputs from agencies.)