War Cabinet minister Benny Gantz warned Sunday that failure to divert all coalition discretionary funds to war needs would cause his National Unity party to vote against a proposed war budget and could lead it to “consider its next steps,” hinting he could bolt the government.
Prime Minister Benjamin Netanyahu’s office indicated it would not accept Gantz’s demands, saying the proposal will be brought before the cabinet Monday and “answers the needs of the war.”
The cabinet was set to discuss changes to the 2023 state budget due to the needs of the conflict with Hamas in Gaza, with Finance Minister Bezalel Smotrich insisting on keeping hundreds of millions of shekels in discretionary coalition money directed at their pre-war targets.
The war budget will be financed by increasing the deficit, channeling funds from government ministries, and cutting some discretionary coalition money, the Treasury said earlier this month.
But Smotrich has kept in the budget some NIS 900 million ($240 million) in funds promised to parties under coalition deals for their preferred goals, including over NIS 300 million for settlement development and “Jewish identity projects” under Settlements and National Missions Minister Orit Strock, as well as over NIS 200 million for Haredi educational and cultural projects.
In a letter to Netanyahu, Gantz said earmarking large sums to controversial needs that do not pertain to the war “will harm national resilience and Israeli societal unity.”
“At this time, all of Israeli society must share the load. The public knows this, and the government must act accordingly,” he said.
Gantz, who was a vocal opponent of the current government since its founding and only entered it temporarily last month to help steer the war after Hamas’s devastating attack on Israel, stressed that “any available moneys must go to war needs and to them alone. If the session is held and the budget stands, National Unity will vote against the proposed budget and will consider its next steps.”
The Prime Minister’s Office insisted that “We will present tomorrow an unprecedented budget of NIS 30 billion ($8 billion) for 90 days that fulfills the needs of the war. The budget will fully provide for the needs of the IDF, both offensively and defensively, will care for the families of the hostages, the wounded, the fallen and the murdered and the evacuated families — and will promise that Israel’s economy continues to work and thrive.”
It added that “over 70% of discretionary funds, at NIS 1.6 billion ($420 million), have already been cut.”
The government has come under intense criticism since October 7 for its failure to provide adequate financial support to those affected by the war, including the hundreds of thousands evacuated from their homes and the many whose livelihood has been harmed.
Smotrich has insisted that the new budget diverts enough funds for such needs and has called the nearly NIS 1 billion in political spending “petty cash” when compared to the larger budget.
The Bank of Israel has disagreed, warning earlier this month that the Treasury’s proposed cuts were not enough and that the government needed to free up additional non-war-related spending, including discretionary coalition funds, to tackle the costs of the ongoing fighting.
In addition to the Finance Ministry’s plan to shave about NIS 4 billion ($1.06 billion) from the 2023 state budget to fund war expenses, there is room to cut another NIS 8 billion to NIS 10 billion in non-war expenditure from next year’s state budget, including planned coalition fund payments, according to a review by the central bank.
The scope of the budget cut currently proposed is not “large, and as such its contribution to strengthening the credibility of the government’s commitment to fiscal adjustment for the costs of the war is limited,” the central bank said in its review.
The central bank was indirectly raising concern that the government’s new fiscal plan could harm its standing in international markets and negatively impact future decisions by credit rating agencies, which in turn could lead to higher costs for raising debt by the State of Israel.
The 2023-2024 state budget, passed in May, included almost NIS 14 billion in discretionary spending, much of which is allocated to educational programs for the ultra-Orthodox community.
To finance the costs of the war with the Iran-backed group, which broke out after the October 7 atrocities perpetrated by Hamas, the Finance Ministry is proposing amendments for an increase in the 2023 budget of about NIS 31 billion — NIS 22 billion for defense spending and NIS 9 billion for civil expenses — alongside a cut of NIS 4 billion in other expenses.
The Bank of Israel emphasized that it estimates that the total fiscal cost of the war in 2023 will not amount to just the NIS 35 billion currently presented by the Finance Ministry. Additional war expenditure will likely be required later in the year or in 2024, and the government will have to finance them from its budget.
Looking ahead to the aftermath of the war, the central bank noted that government expenditure is likely to become bigger due to a permanent increase in defense spending and interest payments as the level and cost of its public debt rises.
Sharon Wrobel and Carrie Keller-Lynn contributed to this report.