Israeli Finance Minister Plans Steep Spending Cuts in 2025 amid Ongoing War

Israeli Finance Minister Bezalel Smotrich announced significant spending cuts in the 2025 state budget to balance fiscal responsibility with the cost of the ongoing war with Hamas. He ruled out tax hikes during wartime and highlighted plans for broad economic measures and sector-specific support.

Israeli Finance Minister Bezalel Smotrich announced on Tuesday that the 2025 state budget will involve substantial spending cuts. The move comes as the government seeks to balance fiscal responsibility with funding the ongoing conflict with Hamas in Gaza.

Smotrich has faced pressure from the Bank of Israel and investors for clear fiscal policies, with calls for spending cuts and revenue increases. However, he has ruled out tax hikes during wartime. He outlined his budget focus points, expecting it to be cabinet-ready by early October and fully approved by December.

Smotrich noted that Israel faces its most prolonged and costly war, estimating expenses between 200 and 250 billion shekels. Despite this, he committed to unlimited war spending until victory, asserting that economic stability depends on national security.

The war, which began on October 7, has led to plans for a 35 billion shekel spending reduction in 2025, maintaining the current tax rates and benefits. The budget deficit target is set at 4% of GDP for 2025, down from 6.6% in 2024.

Despite a deficit rise to 8.1% in July, Smotrich expects it to return to target levels by year-end. With three credit rating downgrades this year and sluggish second-quarter growth of 1.2%, Smotrich emphasized a strong shekel, a thriving stock market, and recovered high-tech investments. He attributed a temporary inflation rise to war-related supply factors.

The economic plan will support the high-tech sector, streamline the public sector, combat tax evasion, and diversify capital sources.

(With inputs from agencies.)