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What happened: Overnight the Knesset passed the budget and affiliated arrangements law.

• All sixty-four members of the governing coalition voted in favour, ensuring a comfortable majority.
• In a stormy parliamentary session, Prime Minister Netanyahu said, “We are passing a responsible, excellent budget that will faithfully serve the citizens of Israel and lead to an improvement in their quality of life.”
• Netanyahu continued, “The budget promotes great revolutions, in personal safety, in education, in transportation and in the fight against the cost of living.”
• During his speech, he was heckled by opposition members, who called him a “dictator,” whilst thousands protested against the budget outside the Knesset.
• The budget was criticised by leader of the National Unity Party Benny Gantz who said, “The cost of living is rising and the coalition has not introduced a single serious reform to deal with it. People are sitting in traffic jams, and the coalition has nothing to say about national infrastructure. People are being murdered in the streets in huge numbers and are afraid to leave their homes—and the coalition is busy talking about budgets and jobs that have no bearing on reality. Netanyahu, the responsibility is on you.”
• Leader of the Opposition Lapid wrote on Twitter this morning, “While you were sleeping, the worst and most destructive budget in the country’s history was passed. This budget is a violation of the contract with Israel’s citizens, which all of us, and our children and our children’s children, will pay for.”

Context: Passing the budget is a crucial milestone, that now gives the government some stability. Had the budget not passed by the end of the month the government would automatically have fallen, precipitating new elections.

• The budget for 2023 will be 484 billion shekels (£105bn) and in 2024 it will be 514 billion shekel, (£112bn) the largest in the country’s history.
• In order to pass this budget, the ruling Likud Party held negotiations and eventually reached understandings with Jewish Power and the ultra-Orthodox United Torah Judaism (UTJ).
• Jewish Power received an additional allocation of 250 million shekels (£54m) to the Negev, Galilee and National Resilience Ministry’s budget. This extra funding will come from budget surpluses from other ministries. Minister Ben Gvir, the leader of Jewish Power, had initially sought an additional 850 million shekels (£184m).
• Meanwhile, the leader of UTJ, Housing Minister Goldknopf, will also receive an additional 250 million shekels (£54m) for retroactive payments for yeshiva students that had been cut by the previous government.
• This decision will award a one-time pay out of 2,500 shekels (£543) to every yeshiva student.
• This was not part of the formal budget and will be allocated out of budget surpluses from other ultra-Orthodox controlled ministries.
• Overall, fourteen billion shekels (£3bn) were allocated to meet commitments made in the coalition agreements, which includes increased funding for ultra-Orthodox education; double the amount of previous years.
• Earlier in the week 280 economists, including the former director general of the Finance Ministry, Avi Ben Bassat, and the former director of the Budgets Department, Udi Nisan, published a letter stating, “The money transfers being made in keeping with the coalition agreements… are likely to cause significant and long-term damage to the Israeli economy and to its future as a prosperous country. This is because of the unprecedented increase in allocating resources to ultra-Orthodox institutions that are unofficial, without making this conditional on supervision and on full core curriculum studies…These measures will deny children in ultra-Orthodox  schools the option of acquiring the vital basic skills for being integrated as adults into the job market in an advanced economy and…it will lower the chances of ultra-Orthodox adults to earn a dignified living and it will increase poverty.”
• The budget coincides with growing concern over increasing cost of living, from basic food products to rent and mortgage repayments. Earlier this week the Bank of Israel raised the interest rate for the tenth time in one year, to now stand at 4.75 per cent.

Looking ahead: The implementation of the budget and monitoring of ministerial surpluses will be overseen by the Knesset Finance Committee, led by MK Moshe Gafni (UTJ).

• With the budget now passed, attention will return to the issue of judicial reform. The government and opposition will return to negotiations facilitated by President Herzog in an effort to reach a compromise.
• The other major agenda item that will be legislating is the ultra-Orthodox exemptions from military service, where the High Court set a deadline for the end of July. For more detailed analysis see our recent paper.