Israel's budget committee approves state budget, cuts it close

After lengthy discussions that ended hours before Shabbat, the government approved the budget for next year.

 Israeli Prime Minister Benjamin Netanyahu leads a cabinet meeting on the state budget, at the Prime Minister's Office in Jerusalem on February 23, 2023. (photo credit: ALEX KOLOMOISKY/FLASH90)
Israeli Prime Minister Benjamin Netanyahu leads a cabinet meeting on the state budget, at the Prime Minister's Office in Jerusalem on February 23, 2023.
(photo credit: ALEX KOLOMOISKY/FLASH90)

Israel's cabinet approved Finance Minister Bezalel Smotrich's proposal for the state budget and economic plan for 2023-2024 on Friday, after a marathon meeting that began on Thursday morning.

The state budget for 2023 will amount to approximately NIS 484 billion and in 2024 to approximately NIS 513 billion, according to a statement by Smotrich.

"We want to show that the tradition we have created here in the State of Israel, of a free economy with fiscal and monetary responsibility, and internal coordination and the independence of the bank, these are the things that stand with us at all times, and especially at this time," said Prime Minister Benjamin Netanyahu after the budget was approved.

"I think this budget does that, and it also does it against the backdrop of some of the best macroeconomic data I can remember in all my years in office. Israel's economy is strong, it is solid. With this overwhelming support of the government ministers today, it is stronger," he said.

Finance Minister Bezalel Smotrich said, "Citizens of Israel, we formed a government together less than two months ago, and each of the partners in the government has large and broad work plans."

 Governor of the Bank of Israel Amir Yaron arrives to a cabinet meeting on the state budget, at the Prime Minister's Office in Jerusalem on February 23, 2023. (credit: ALEX KOLOMOISKY/FLASH90) Governor of the Bank of Israel Amir Yaron arrives to a cabinet meeting on the state budget, at the Prime Minister's Office in Jerusalem on February 23, 2023. (credit: ALEX KOLOMOISKY/FLASH90)

"Today we took a first and important step in the right direction. Today, we in the government passed a two-year budget and an economic plan and this is a good step for the State of Israel, good for the Israeli economy and good for the citizens of Israel," the finance minister said.

Former finance minister, Yisrael Beytenu chairman MK Avigdor Liberman, criticized the budget.

"The budget as it was approved is a classic 'Israbluff,' there is no official budget book and in the whole session the high cost of living was not mentioned at all. It is all on ice," Liberman said.

The Budget Law and accompanying Economic Arrangements Law will now head to the Knesset. They must pass their first reading in the Knesset plenum by March 23, and must pass into law by May 29, according to Israeli law.

Israel's economic standing amid new national budget

From a global economic perspective, Israel is performing relatively well: Israel's economy was rated by The Economist as the fourth-best-performing in 2022 among a list of 34 wealthy OECD countries.

A primary contribution to its relatively strong performance is its lack of reliance on Russian oil, thanks to its thriving offshore supply of oil and natural gas.

As well, Israel has done a decent job in mitigating the effect of global inflation, boasting a relatively low rate when compared to OECD averages.

Despite its currently high marks, it is expected by hundreds of leading economic experts that the government's proposed judicial reform will do significant damage to Israel's economy by tanking its reputation among foreign investors.

The hi-tech industry — which makes up around 11% of Israel’s workforce, a quarter of tax contribution and 50% of its exports — relies heavily upon direct foreign investment.

Already leading global finance organizations such as S&P and JPMorgan have warned against the reform's negative effect on Israel credit rating.

Chief economist at the Finance Ministry Shira Greenberg warned on Thursday against the judicial reform's negative effects on Israel's economy as a result of negative perception in the global market.

"The market perceives the reform as harmful to the… independence of state institutions and increasing uncertainty in the investment environment," she wrote in a document forwarded to ministers. "This may harm economic activity and, in particular, private investments."

Netanyahu in a tweet on Friday highlighted four facets of the budget. This included education, where children aged two to three will receive free daycare, similar to what Israeli three to six-year-olds receive; security, including equipping the military against Iran and a "record budget" for the Israel Police; transportation, including a bullet train from Kiryat Shmona to Eilat; and housing, including increasing supply, advancing competition and shrinking concentrated markets, bureaucracy, and regulation.

A number of ministers and directors-general announced their satisfaction with their respective budgets, as several ministries will see a large increase in their budgets for the coming year.

The National Security Ministry under Minister Itamar Ben-Gvir will receive an additional NIS 9 billion. 

"This is huge news to the police and the people of Israel and with the help of God, we will be able to bring personal security back to the people of Israel. A great achievement for personal security policy. It does not happen within a day, the budget will come in a good few months, but let's hope that in the end, we will start with a tremendous process that brings back security and governance," Ben-Gvir said.

The Culture and Sports Ministry, led by Minister Miki Zohar, will receive an additional NIS 1 billion, the highest budget increase in the history of the ministry since its establishment. "This is an unprecedented budget supplement that will change the face of culture and sports in Israel, it is definitely a new era," Zohar said.

The budget of the Negev, Galilee and National Resilience Ministry led by MK Yitzhak Wasserlauf will increase to NIS 2 billion, while the Heritage Ministry under Minister Amihai Eliyahu will receive over half a billion shekels, the highest the ministry ever received.

The Aliyah and Integration Ministry also received a NIS 200 million increase, which will be intended for employment programs to integrate new immigrants, to encourage entire communities to make Aliyah, and a program to encourage aliyah from the US and France, according to minister Ofir Sofer.

The Communications Ministry received an approximately 15% increase in its budget base, and an approximately 20% increase in unique projects, according to minister Shlomo Karhi. These include a plan to advance fifth-generation internet infrastructure. It also includes NIS 60 million for a plan to "encourage competition in news and current events," which could lead to shutting down parts of Israel's public broadcasting service, KAN, in favor of privately owned outlets.

Director General of the Health Ministry, Moshe Bar Siman Tov said, "the health system is a system that knows how to move forward quickly and lead significant processes in a short time when it is given the necessary resources. Obviously, we have not achieved all our requirements, but this morning's budget will allow the system to continue to give the required support to preserve the system and begin to prepare for future challenges."

Siman Tov lauded Shas chairman MK Arye Deri for his "personal involvement" in the negotiations. Deri served as health minister less than a month before he was fired by Netanyahu due to a High Court of Justice ruling blocking him from serving as a minister due three past white-collar criminal convictions, the latest being a 2021 plea bargain, in which he stated he would not return to politics.

Not all of the ministers were happy with the results.

Tourism Minister Haim Katz announced his opposition to the budget for his ministry, calling it a "funeral" for his office. He boycotted the meeting and did not vote. Another issue reportedly is the cancellation or reduction of a VAT exemption for tourists.

"I congratulate the Israeli government for approving the budget. We did not reach agreements regarding tourism and I intend to work to correct the injustices in the coming legislative process. I hope that common sense will prevail. Damaging tourism is damaging both the economy and Israel's image. The tourists are our ambassadors, tourism is an asset and we do not have the privilege to disparage it," Katz wrote.

The High School's Teacher's Organization announced that it would launch a number of measures to protest what it accused was a "disgraceful" budget from the education ministry. The measures will include stopping grading of students' exams and papers, as well as canceling all extra-curricular activity.