The budget: Government ministers approved the budget for next year with the aim of sustaining the war effort, supporting reservists and their families and stimulating growth.
- The budget will stand at NIS 607.4 billion, (approximately £125bn) alongside additional adjustments measures which total approximately NIS 37 billion (£7.6bn).
- It includes a NIS 9 billion package (£1.85bn) to support the unprecedented number of 300,000 reservists.
- In order to cover some of the costs and rein in a budget deficit of about 4.3 per cent, ministers approved a roughly NIS 40 billion package (£8.22bn) of tax hikes and spending cuts. This will include raising VAT from the current 17 per cent to 18 per cent.
- The government has not yet published the full details of the hike of national insurance contributions, but it is expected to add between NIS 1,000 to NIS 2,000 (£205 – £410) a year in contributions to an average household.
- However, benefits paid to the elderly, people with disabilities, Holocaust survivors and families of fallen soldiers will not be frozen as was proposed, except for child allowances.
- Finance Minister Smotrich explained that the deficit is a result of the high cost of the country which has now been at war for over a year.
- The budget makes cuts across several ministries including: health, agriculture, education, welfare and social affairs. Additionally, five government offices will be closed, although an announcement on which ones has not yet been made.
- At Friday’s cabinet vote the budget passed 23 votes to 7 with four ministers from the prime minister’s Likud party, as well as the three from Jewish Power, voting against.
- These included Likud Minster for Culture and Sports Miki Zohar and Environmental Protection Minister Idit Silman who opposed proposed cuts to their ministries. Jewish Power ministers Itamar Ben Gvir, Amichai Eliyahu, and Yitzhak Wasserlauf, also voted against the budget due to what they describe as harm to the security services.
- Two more ministers, Yitzhak Goldknopf, (leader of United Torah Judaism – UTJ) and Gideon Saar (New Hope) did not participate in the vote.
- Opposition leader Lapid criticised the government, saying that the budget will raise the expenses of every family in Israel while simultaneously handing out NIS 10 billion to unnecessary government offices.
Controversy over the daycare subsidies bill: The bill was recently submitted by the UTJ party in order to ease the criteria for daycare subsidies for ultra-Orthodox children.
- The intention of the bill is to circumvent a decision earlier in the year by the attorney-general to block subsidies for children of yeshiva students where the father has refused to serve in the military. Instead it proposes criterion based exclusively on the mother’s employment, irrespective of whether the father works for a living.
- The bill was proposed following a decision by ultra-Orthodox lawmakers to delay their demand for a new conscription law until after a vote on the budget. That decision followed widespread anger and resentment over the ultra-Orthodox demand to exempt their members from military service.
- Despite Netanyahu’s openness to passing that day subsidies bill, and with a Knesset vote on it for a preliminary reading scheduled for Wednesday, several members of the coalition have announced their decision not to support it.
- Opposition has been voiced by Likud MKs Defense Minister Gallant, Yuli Edelstein and Dan Illouz; Religious Zionism party MKs Ophir Sofer, Ohad Tal and Moshe Solomon; and Gideon Saar’s faction. In light of this, the bill is no longer expected to enjoy a majority with the balance in the Knesset now 57 for and 57 against.
- Yesterday Saar, who recently joined Netanyahu’s coalition, explained the reasoning for his opposition. “The reservists have served, and are serving, an incomprehensible number of days on reserve duty over the past year. There have been deaths; soldiers have been wounded—physically and mentally. Their families are paying a high price, in terms of family dynamics and finances. At this moment, the government and the IDF must strive to carry out significant processes to increase participation in the responsibility and the privilege of serving from all sectors of the public. That is imperative.”
- Sources inside UTJ said they “expect the prime minister to enforce discipline in the coalition ranks, with an emphasis on the Likud. If the daycare subsidy bill doesn’t pass on Wednesday, we will vote in accordance with our own decisions on every piece of legislation emerging from the ranks of the Likud.”
- UTJ also hinted it may reconsider voting with the government on several bills. MK Yaakov Asher said, “If the Likud splits on the daycare subsidy bill and some members vote with the opposition in order to undermine ultra-Orthodox women’s employment, we also have a variety of views about the ratings bill [legislation that would give the government the authority to oversee television ratings], the public broadcasting corporation bill [legislation to increase government control over the Israel Public Broadcasting Corporation budget] and the Israel Bar Association [a reference to a key part of Justice Minister Yariv Levin’s judicial reform proposal]. The opposition also has good proposals that we can support. We have nothing to lose.”
Context: The Israeli economy registered a sharp slowdown due to the war. Factors include the high living costs, the mobilisation of army reservists, as well as the decline in productivity and reduction in exports.
- According to the finance ministry, GDP growth for 2024 is estimated at 0.4 per cent, although it has revised expectations for 2025 and predicts growth of 4.3 per cent based on the assumption that the war’s intensity would continue for now, but fighting will end after the first quarter of 2025.
- There remains tension between the defence and finance ministries. The defence budget currently represents 6.5 per cent of Israel’s GDP. According to Finance Minister Smotrich they still need to take into consideration the impact of the defence budget on other sectors, as economic growth and recovery will strengthen the security situation in Israel.
- Prime Minister Netanyahu has said that, if necessary, the government will submit a ‘supplemental budget’ to cover the additional defence costs
- As of now, the IDF has reportedly completed drafting the staff for the first ultra-Orthodox brigade, as well as establishing infrastructure for the induction of the brigade’s first unit next month.
- Defence Minister Gallant has given his approval for an additional 7,000 draft orders to be sent to members of the ultra- Orthodox community. In the summer, during the first phase, 3,000 orders were sent but only around 300 showed up at induction centres.
- The tension over ultra-Orthodox men not serving in the IDF has for many years caused tension in Israeli society. Yet over the past year – in which approximately 300,000 reservists have been called up since October 7 2023, 18 percent of whom were men over 40 who should have been exempted – this tension has increased.
- There is significant opposition within religious Zionist circles (within which the Religious Zionism and Likud parties draw support from) to the continued exemption of the ultra-Orthodox).
- At the same time, the ultra-Orthodox parties have been loyal and consistent members of Netanyahu’s coalition.
Looking ahead: The government will need to recalibrate its position on the subsidies bill and how this may affect the vote on the budget.
- If it passes its first reading in the Knesset, the budget will subsequently be sent to the Knesset Finance Committee, which will prepare the final version for the second and third votes


