Cabinet approves 2025 budget proposal after last-minute backtrack over stipend freezes
Ministers agree to scrap proposed freeze for Holocaust survivors, bereaved families; opposition pans agreement; Gantz: Anyone who supports this should feel shame for rest of their life
The cabinet approved the Finance Ministry’s proposal for the 2025 budget on Friday after Prime Minister Benjamin Netanyahu, Finance Minister Bezalel Smotrich and MK Aryeh Deri agreed to cancel a plan to freeze government allowances.
The budget will now begin its progress through the Knesset. It must be passed by the end of March 2025 or the government would automatically fall, triggering early elections.
In all, the budget includes a roughly 40-billion-shekel package of tax hikes and spending cuts to try to rein in a budget deficit now running at 8.5 percent of GDP.
Overall spending was set at 744 billion shekels ($199.23 billion), of which 161 billion will go towards debt servicing.
As part of the agreement among ministers that enabled the cabinet’s approval of the budget, benefits paid to the elderly, people with disabilities, Holocaust survivors and families of fallen soldiers will not be frozen as was proposed, with the exception of child allowances.
Instead, National Insurance payments will increase by a corresponding amount, according to a statement from the Prime Minister’s Office, which did not provide any further details.
“The decision was taken to uphold fiscal framework and the confidence of the markets, without harming the disabled, the elderly, bereaved families and weak population,” the statement said.
The agreement followed outcry, in particular over the proposal to freeze benefits to bereaved families.
In a scathing public critique, the Defense Ministry stated on Thursday that it “opposes any violation of the rights of the IDF wounded and members of the bereaved families, certainly in a time of war and in a year when, unfortunately, the circle of those affected has painfully expanded.”
In a statement, Smotrich said “the main goal in the 2025 budget is maintaining the security of the state and achieving victory on all fronts, while maintaining the resilience of the Israeli economy.”
Netanyahu said defense allocations may be boosted further, either by adding funds to the budget before it comes to a vote in parliament in January, or by means of a supplemental budget.
He said the budget does not include potential additions that may be made after proposals from the Nagel committee, a special panel appointed by the government this year to make long-term recommendations on the security budget in the coming decade.
All three of the main credit-rating agencies have cut their ratings on Israel this year on worries that the war could continue well into next year.
Among the measures likely to bite hardest on Israeli households, value-added tax will rise in 2025 to 18% from 17%, while inflation continues to rise.
In addition, there will be spending cuts across most ministries. However, according to Channel 12 news, the budget includes some NIS 4.1 billion ($1.1 billion) in coalition funds, monies doled out to fulfill political promises made when wrangling to form a coalition government. That means that they were cut in line with the reduction in monies for ministries, rather than seeing a larger percentage taken.
The package will have to go to parliament for approval, which Smotrich said was expected by January.
The far-right Otzma Yehudit led by National Security Minister Itamar Ben Gvir party voted against the budget proposal due to “harm to the functioning of the police, Israel Prison Service, and Fire and Rescue services,” institutions that fall under the purview of the National Security Ministry.
“The Finance Ministry announced that they would not budget for the additional expenses of the internal security bodies for 2025. In light of this, the negotiations between the National Security Ministry and the Finance Ministry broke down,” the party said in a statement.
Culture and Sports Minister Miki Zohar also voted against the budget proposal because of cuts to his ministry, as did Environmental Protection Minister Idit Silman. Both ministers are members of Netanyahu’s Likud party.
As part of the 2025 budget, the Finance Ministry is proposing to significantly increase defense spending and calling for steep spending cuts and tax rises to finance the growing war costs and to fill a fiscal hole of NIS 40 billion ($10.7 billion).
The proposal allocates NIS 605 billion ($163 billion) for 2025, which is about NIS 18 billion ($4.8 billion) more than this year and NIS 61 billion ($16.3 billion) higher compared to the original 2024 budget before it was revised due to war costs.
To finance the war, which is estimated to cost NIS 250 billion ($66.8 billion), the Finance Ministry is proposing steep spending cuts as well as tax increases to fill a fiscal hole of NIS 40 billion ($10.7 billion) in 2025.
Opponents of the government criticized the proposed budget, with Opposition Leader Yair Lapid saying the government passed a “reckless budget” that will raise costs for Israeli families by NIS 20,000 ($5,000) annually.
“[The budget] hands billions of shekels to 10 unnecessary government ministries. They’ve lost their shame,” he wrote on X.
National Unity chair Benny Gantz accused the government of authorizing NIS 4 billion for themselves, instead of for the welfare of Israeli citizens.
“Coalition funds, as they are called, intended to uphold Prime Minister Netanyahu’s coalition. Anyone who supported this budget — the mark of Cain will accompany them for the rest of their life. Shame,” Gantz wrote on X.
The head of the Confrontation Line Forum, a grouping of northern regional council heads, also decried the budget for not allocating more funds for rehabilitating the north after more than a year of Hezbollah attacks.
“We got proof of what we’ve been shouting for a year of war about the abandonment of the residents of the confrontation line,” Moshe Davidovich, who heads the Mateh Asher Regional Council, was quoted as saying by the Walla news site.
The budget comes just days after the Finance Ministry cut the 2024 growth outlook for the second time this year to just 0.4% from an earlier estimate of 1.1%.
The cost of the war and the absence of tens of thousands of reservists serving at the front, along with the exclusion of thousands of Palestinian workers from Israel for security reasons, have weighed heavily on major pillars of the economy including tech, construction and agriculture.
Sharon Wrobel and Sam Sokol contributed to this report.
