Impact of Gaza Conflict on Israel's Economy
The ongoing conflict in Gaza has placed significant economic pressures on Israel, leading to an increase in public transportation fares starting next July. Monthly subscriptions for buses and high-speed trains will see a 5% rise, while individual bus trips will increase from 5.5 shekels ($1.48) to 6 shekels ($1.61). Light train fares will also go up to 8 shekels ($2.15). The Israeli economic newspaper Globes reported that these fare hikes are a result of the financial strain caused by the war on Gaza and military expenditures.
Government Measures to Address Fiscal Deficit
In an effort to manage rising military expenditures and the potential opening of a new front against Hezbollah, Israel's Ministry of Finance has proposed a comprehensive reduction in ministry expenditures by 5% for next year’s budget, amounting to 3.5 billion shekels ($940.2 million). This proposal includes reducing the salaries of senior public sector managers, postponing civil service pay increases, and cutting allocations to coalition parties by 2 to 4 billion shekels ($534.2 million to $1 billion). Additionally, there are plans to raise the value-added tax rate to 19%. These measures aim to reduce the expected fiscal deficit for the next year by about 3.8% of the gross domestic product.
Diplomatic Tensions and War Strategy
The conflict has also strained diplomatic relations between Israel and the United States. U.S. officials, including Defense Secretary Lloyd Austin and Secretary of State Antony Blinken, are seeking clarity on Israel's war plans from Defense Minister Yoav Gallant. Prime Minister Benjamin Netanyahu's ambiguous statements regarding a temporary ceasefire in exchange for the release of hostages have caused frustration among Biden administration officials. Netanyahu’s insistence on continuing the war until all hostages are returned and his comments on ongoing military engagement in Gaza have further complicated U.S. efforts to mediate a ceasefire. Additionally, the potential for increased military action on Israel’s northern border with Lebanon has raised concerns about a larger regional conflict.
- Israel has been curbing fuel prices for several months by reducing the tax on it. However, the Transportation Ministry has indicated that there are no budget resources to support the fare increase due to the ongoing war and military expenditures.
- The Budgets Department of the Ministry of Finance has prepared a list of possible amendments with a total value of up to 50 billion shekels ($13.43 billion) to address the fiscal deficit.
- Netanyahu's recent statements have aimed at different audiences, reflecting ambiguity that has frustrated U.S. officials. While he has expressed willingness for a temporary ceasefire, he has also emphasized that the war will continue until all hostages are returned.
- U.S. officials have warned that continued military engagement in Gaza would be extremely harmful and could lead to further instability and insecurity for Israel. They are also concerned about the rising tensions along the Israel-Lebanon border and the potential for a larger war.
