War with Hamas to cost Israel at least NIS 50 billion in 2024, says Treasury

Finance Ministry forecasts that defense spending will have to increase by NIS 30 billion and another NIS 20 billion will need to be spent on civilian and other expenditure

Sharon Wrobel is a tech reporter for The Times of Israel.

Israelis inspect a damaged residential building after it was hit by a rocket fired from the Gaza Strip, in Ashkelon, Israel, October 9, 2023. (Erik Marmor/AP)
Israelis inspect a damaged residential building after it was hit by a rocket fired from the Gaza Strip, in Ashkelon, Israel, October 9, 2023. (Erik Marmor/AP)

The ongoing war with the Hamas terror group is expected to cost Israel around NIS 50 billion ($13.8 billion) in 2024, assuming that high-intensity fighting in Gaza will come to an end in the first quarter of the new year, according to the Finance Ministry.

To meet Israel’s security needs going into 2024, defense spending is poised to increase by NIS 30 billion, the Finance Ministry reported in a document presented to the Knesset Finance Committee on Monday.

Another NIS 9.6 billion will be needed for civilian expenses resulting from the war, including the evacuation of residents along the country’s southern and northern borders, the fortification of emergency forces such as police, and the rehabilitation of war-ravaged communities. An additional NIS 8.8 billion was budgeted for other costs, including larger government debt-financing and higher interest rate expenses than planned before the outbreak of the war.

As a result, overall budgetary spending for 2024 is expected to balloon to NIS 562.1 billion from the NIS 513.7 billion that was approved in May. Meanwhile, government revenue, mainly tax income, is likely to fall short of forecasts due to a slowdown in the economy during the war period.

Higher-than-planned expenditure and expectations for lower government income will lead to a budget deficit of 5.9 percent of gross domestic product in 2024, up from the planned ceiling of 2.25%, the Finance Ministry estimated.

War erupted between Israel and Hamas on October 7, when some 3,000 terrorists burst across the border into Israel from the Gaza Strip by land, air, and sea, killing some 1,200 people and seizing over 240 hostages of all ages — mostly civilians.

Israeli reserve soldiers seen in the Golan Heights during a military training before heading to the Israeli-Gaza border, on October 25, 2023. (Michael Giladi/Flash90)

In response, Israel mobilized more than 350,000 reserve soldiers to join the fighting, vowing to eliminate the terror group with a wide-scale military campaign in Gaza. In addition, the Israeli army has also massed forces in the north to counter attacks by the Iran-backed Hezbollah terror group.

The Finance Ministry expects the economy to grow at a pace of 1.6% next year, slowing further from the 2% forecast for 2023, and after fast growth of 6.5% in 2022. That’s amid expectations for a continued slowdown in private consumption, real estate deals, and corporate earnings due to the repercussions of the war.

The ministry trimmed its government revenue forecast for 2024 to NIS 417.1 billion, and expects it to be NIS 35 billion lower than the projection in June.

Bank of Israel Governor Amir Yaron has in recent weeks urged lawmakers to make adjustments and cut expenses in the 2024 budget that are not related to the fighting effort or that do not promote growth, to balance rising war costs, while maintaining fiscal responsibility.

The call for fiscal restraint comes as the central bank is concerned that the government’s management of the higher security spending burden could harm Israel’s standing in international markets and negatively impact future decisions by credit rating agencies, which in turn could lead to higher costs for raising debt.

In mid-December, a supplementary budget for 2023 of NIS 28.9 billion to cover the costs of the ongoing fighting with Hamas and Hezbollah was passed, in the face of opposition from parties on both sides of the aisle because it included some funding allocated to projects not connected to the war effort.

The supplementary budget included increased military expenditure and money for civilian expenses, such as accommodation for evacuees from the north and south. But, controversially, it also included hundreds of millions of shekels in so-called “coalition funds,” which are discretionary funds earmarked for pet projects of MKs and ministers.

The supplemental budget adds an extra NIS 25.9 billion to the original 2023 budget, raising it to NIS 510.6 billion, before debt servicing costs. Another NIS 3 billion will be diverted from existing funds.

Some NIS 17 billion of the NIS 28.9 billion funds for the war will go toward security costs such as arms procurement and payments for IDF reservists, while NIS 12 billion will finance home front expenses.

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