Israel's Budget Deficit Concerns Amid Ongoing Conflict
The Israeli government is grappling with a worsening budget deficit, expected to peak in 2025 due to increased military expenditures resulting from the ongoing conflict in Gaza. Economic advisor Avi Simhon has proposed offering additional tax benefits on the distribution of retained profits by companies to mitigate this deficit. Supported by Prime Minister Benjamin Netanyahu, Simhon's plan aims to generate taxes worth NIS 20 billion ($5.33 billion) from the distribution of NIS 80 billion ($21.35 billion) in retained earnings.
Opposition to Proposed Tax Benefits
Despite the potential short-term financial relief, the proposal has faced strong opposition from professionals within the Ministry of Finance. Critics argue that this approach could reduce Israel's revenues in the long term and create expectations for future tax breaks, encouraging companies to continue accumulating profits. Shai Aharonovitch, Director of the Israel Tax Authority, echoed these concerns, suggesting that the campaign could ultimately decrease tax revenues in the coming years.
Broader Economic Measures and Military Actions
In addition to the proposed tax benefits, the Ministry of Finance has suggested a comprehensive reduction in ministry expenditures by 5% and other cost-cutting measures to address the budget deficit. Meanwhile, the Israeli army continues its military operations in Gaza, with recent bombings resulting in civilian casualties, including the family members of Hamas leader Ismail Haniyeh. The conflict has also led to increased tensions on the Lebanese border, with the United States urging Israel to avoid further escalation.
- The proposal to offer tax benefits on retained profits is seen by some as a necessary measure to address the immediate financial strain caused by the conflict. However, the long-term implications of such a policy remain a point of contention among Israeli financial experts.
- The conflict in Gaza has resulted in significant civilian casualties and has drawn international criticism. The United Nations has reported that nearly half a million people in Gaza are experiencing 'catastrophic' hunger, with children being particularly affected by the violence.
- Israeli Defense Minister Yoav Gallant's trip to the United States aims to ease tensions and secure support amidst the ongoing conflict. The Israeli government is also facing internal challenges, including a Supreme Court ruling that ultra-Orthodox students must be enlisted in the army, complicating the political landscape for Netanyahu's coalition government.
