Israel's Austerity Budget Amid Ongoing Conflicts
As Israel grapples with the financial fallout of its ongoing wars in Gaza and Lebanon, the government is moving towards a stringent austerity budget for 2025. Prime Minister Benjamin Netanyahu emphasized the need for a robust economy to support national security, stating, "There is no economy without restrictions. If you spend on something, you will unfortunately have to cut back on something else." The proposed budget aims to cut spending and raise taxes to address the soaring costs associated with military operations.
The military engagements have significantly strained Israel's finances, leading to a projected fiscal deficit of 8.5% of GDP for 2024, a figure that the government aims to reduce to 4% by 2025. This will be achieved through a combination of spending cuts and tax hikes, including an increase in the value-added tax from 17% to 18%. Finance Minister Bezalel Smotrich indicated that military spending will reach 102 billion shekels ($27.5 billion) in 2025, marking a critical focus of the budget amidst rising inflation and living costs for citizens.
Economic Impact of Military Actions
The wars have not only drained financial resources but have also led to a significant downturn in economic growth. The International Monetary Fund (IMF) has revised its growth forecast for Israel to just 0.7% for the current year, down from an earlier estimate of 1.6%. This downturn is attributed to increased military expenditures and the subsequent economic instability. The IMF projects a modest recovery in 2025, with growth expected to reach 2.7%.
The Israeli economy has faced numerous challenges since the onset of Operation Flood of Al-Aqsa on October 7, 2023, which has contributed to supply chain disruptions and rising inflation. As the government prepares for a preliminary vote on the budget, the urgency to stabilize the economy while managing military costs remains a pressing concern for officials.
