Statement by Prime Minister Netanyahu: In a surprise announcement on Tuesday night, Netanyahu fired Defence Minister Gallant. Netanyahu spoke of the necessity of “complete trust” being required between the prime minister and the defence minister.

• Adding, “Unfortunately, even though such trust was present during the first months of the military campaign, and we had a very productive cooperation, during the past several months this trust between myself and the Defence Minister has begun to crack.”
• “Defence Minister Gallant and I had substantial disagreements on the management of the military campaign, disagreements which were accompanied by public statements and actions that contravened the decisions of the Government and the Security Cabinet.” 
• “I have made multiple attempts to resolve these disagreements, but they became increasingly wider. They were also brought to the knowledge of the public in an inappropriate manner, and what is even worse, they have reached the knowledge of the enemy; our enemies have taken great delight in these disagreements and have derived much benefit from them.”
• “The increasingly wide crisis of confidence between myself and the Defence Minister had become public knowledge, and that crisis is hindering the continued proper administration of the military campaign.”
• Gallant will be replaced by Foreign Minister Yisrael Katz who, in turn, would be replaced by Gideon Saar.

Gallant statement: Gallant struck a dignified tone. He outlined the military achievements he oversaw across multiple fronts adding, “The security of the State of Israel has been, and always will be my life’s mission, and I am committed to this.”

• He continued, “my removal from office is the result of disagreements on three issues:
  • “The first, my steadfast position that every individual at the age of recruitment, must be recruited for service in the IDF and must defend the State of Israel. This is not just another minor social issue, this is a central issue to our existence, to the security of the State of Israel and the Jewish nation. During this war we have lost hundreds of soldiers and thousands have been wounded…. In this context there is no choice – everyone must serve in the IDF, and participate in the mission of defending the State of Israel.”
  • “The second issue – It is our moral obligation and responsibility to ensure the return of our boys and girls held hostage, as soon as possible and to bring them back alive, to their families and homes.” 
  • The third issue – We must learn lessons and draw conclusions following a thorough investigation of events….there is only one way: the establishment of a state commission of inquiry.” 
• He added, “there are still significant challenges ahead of us, in facing Iran and its proxies in the region. Israel’s defence establishment is strong, we are striking our enemies sand defeating them. However, the war is not over, and unfortunately we will be required to face our enemies for many years ahead.”

Other responses: Leader of the opposition Lapid called the decision “an act of madness.” 

• Adding, “Netanyahu is selling Israel’s security and the IDF’s fighters for contemptible political survival. The fully right-wing government prioritises draft-dodgers over those who serve.” 
• Leader of the Democrats Yair Golan also called on the public to “head into the streets.”
• Tens of thousands of people demonstrated last night in several locations throughout Israel to protest the decision. In Tel Aviv, the Ayalon Highway was blocked for a few hours and large bonfires were lit. Roughly 40 demonstrators were arrested. In Jerusalem, a demonstration was held near the prime minister’s residence and demonstrators marched in the direction of the Knesset. 
• President Herzog wrote on X, “The last thing the State of Israel needs now is upheaval and a rift in the middle of a war. The State of Israel’s security must be above every consideration. One hundred and one hostages are in enemy captivity this evening as well. Thousands of daughters and sons of bereaved families are mourning their world that was destroyed. Many reservists are carrying the burden of defending the people and the homeland and are crying out along with their families.”
• Former prime minister Bennett said,  “We have an insane and sick leadership that has lost any connection to what is important to the State of Israel and is acting against Israel and against the soldiers. Change is on the way. It will come. We will organise Israel from within.”
• Whist National Security Minister Ben Gvir welcomed the move, writing: “I congratulate the prime minister for his decision to fire Gallant. With Gallant, who is still deeply beholden to the preconception, we can’t reach total victory—and the prime minister did well to remove him from office.”

Context: The decision is widely being interpreted as a crude political manoeuvre by Netanyahu to ensure the survival of his coalition. 

• He is facing increasing pressure from his ultra-Orthodox partners to pass the daycare subsidies bill and pander to their demands to enshrine their (lack of) service in the IDF in a new law. 
• Whist legally it is the prime minister’s prerogative to sack any minister, removing an accomplished heavyweight security expert whilst still fighting a multi-front war has been widely greeted with shock and anger.
• Underlining this, 11 ballistic missiles were fired this morning from Lebanon, with sirens heard across Tel Aviv and central Israel. No injuries have been reported. Whist fighting continues in Lebanon and Gaza.
• As well as his security acumen, Gallant through his close relationship with US Defence Secretary Austin, led the Israeli liaison with the US, including at a time now when Israel is facing a potential imminent attack from Iran.
• The announcement also coincides (and distracts attention) from the latest scandal enveloping the prime minister’s office over leaked intelligence documents. 
• It also coincided with the US election. Prime Minister Netanyahu was quick to congratulate President Elect Trump, even before the result has been confirmed.
• By promoting Katz and Saar, Netanyahu has found a way out of political trap. Only yesterday the coalition found it did not have a majority to pass the daycare bill.  Saar was among those who spoke out against it. However, even he cannot so brazenly support a bill today that he opposed yesterday so instead the issue has now been removed from the legislative agenda for today. It is anticipated that this will now be included in overall compensation package to the ultra-Orthodox on a new draft bill, that will be prepared by the new defence minister. 
• There has been long standing acrimony between Netanyahu and Gallant. Netanyahu first attempted to remove Gallant in Spring 2023 after Gallant warned of dire security ramifications over the proposed judicial reform. That led to mass protest on the streets and Netanyahu’s subsequent reversal.     
• The new Defence Minister Israel Katz is one of Israel’s longest serving Likud politicians, having first been elected in 1992. He has served as  Minister of Foreign Affairs (twice), Minister of Finance and Minister of Intelligence (for five years), and a long-standing member of the Security Cabinet. He is considered a Netanyahu loyalist that will be less strident and independent than Gallant. 
• The decision of Gideon Saar to serve as foreign minister, marks a sharp U-turn since he left the Likud in disillusioned after unsuccessfully challenging Netanyahu’s leadership in 2019. He has also served a variety of portfolios in the past including minister of education, interior and justice.        

Looking ahead: Defence Minister Katz faces a steep learning curve to familiarise himself with numerous complex security challenges. 

• It has been speculated that removing Gallant is the first step for Netanyahu to dismiss the heads of the security establishment, placing them culpable for the October 7th attack and distancing the political echelon from the failure. Netanyahu has denied this claim.       
• The move adds further despair to the 101 hostage families now in captivity 397 days, who had held out hope for Minister Gallant leading efforts to conclude a deal

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