The website of the newspaper “Globus”, which specializes in the Israeli economy, said that the program to support reserve soldiers with financial grants – which seemed promising at the moment of its announcement – quickly turned into a burden on the Israeli budget.
The Israeli Prime Minister hastened Benjamin Netanyahu, Finance Minister Bezalel Smotrich and Defense Minister Yoav Gallant announced the program earlier this week, but their celebratory mood was short-lived.
In response to inquiries about financing the program worth 9 billion shekels ($2.4 billion), Finance Minister Smotrich completely denied these concerns, noting that the program “is the foundation of the 2024 budget that we will present.”
However, within just 3 days, it became clear that Smotrich's position did not withstand the fiscal challenges, with the Ministry of Finance now facing a potential fiscal deficit of 6% to 7% of GDP as a result of the Israeli war on… Gaza strip.
Globes points out that despite the looming financial crisis, the government seems reluctant to implement measures such as cutting coalition party spending or raising taxes. As a result, there is now insufficient funding for much-needed grants for reservists, according to the report.
In a surprising turn of events, the head of the Histadrut, the General Federation of Labor in Israel, Arnon Bar-David, appeared to reveal the government solution, which is for every wage worker in Israel to contribute more than 400 shekels ($107) of his wages to finance the program, in light of Netanyahu and Smotrich’s reservations. Gallant, in announcing the unpopular move.
According to the Globes website, the proposed contribution aims to secure two billion shekels for the reserve grant program. However, doubts remain as to whether the funds will be allocated exclusively for the intended purpose or will be diverted to cover other expenses.
The newspaper indicates that there is a general mood in Israel that considers financial aid to reserve soldiers and their families justified, but the method that was chosen for financing generates significant adverse reactions.
The decision places a heavy burden on low-income individuals, in addition to limiting financial responsibility to the working class, which contributed to raising widespread criticism, especially with Netanyahu’s rejection of the alternative of increasing the rate. Value added taxwhich would distribute the burden more widely.
Yesterday, Thursday, the Israeli Ministry of Finance said that Israel recorded a budget deficit of 4.2% of GDP in 2023, compared to a surplus of 0.6% in 2022.
She attributed the matter to the increase in government spending to finance the war that it has been waging against the Gaza Strip for 97 days. The deficit was expected to reach 3.4% in a previous estimate last November.
She added that the deficit recorded last December alone amounted to 33.8 billion shekels ($9 billion).
According to the ministry, the deficit for the entire year amounted to $18.5 billion, while tax revenues declined by 8.4%.
Last December, lawmakers approved the war budget for 2023, amounting to about 30 billion shekels ($8 billion).