Israeli government approves budget increase for reservists, evacuees despite opposition from finance officials

Finance Minister Bezalel Smotrich announced late Saturday evening that he will expand the state budget for 2024, for the second time in a year. 

The move comes despite a growing deficit due to the war and contrary to the recommendation of Finance Ministry officials.

This is the first time in Israeli history that the state budget has been exceeded twice in a fiscal year. 

The proposal to increase the budget was approved by the Cabinet on Sunday, allocating nearly 3.4 billion shekels ($924 million) in relief for reserve soldiers and evacuated Israeli civilians through the end of the year.

When announcing the new plan, Smotrich stated: “Contrary to reports, the increase in spending is being done without raising the deficit target.” 

His statement was contested by several opposition politicians and officials from the Finance Ministry. Reports in Hebrew media indicated that the increased spending would be balanced by cuts in other areas of the budget.

A senior Finance Ministry official told Israel's finance site Calcalist that ministry officials opposed the move. 

“The announcement was not coordinated with us,” the official said. “Of course, increasing expenditure increases the deficit, and any other statement is throwing sand in the eyes of the public." 

According to Smotrich, the new budget expansion will add close to NIS 2.2 billion (over $600 million) in assistance to the 80,000 Israelis who are displaced from their homes near the borders of Gaza and Lebanon.

Approximately NIS 200 million ($55 million) will be allocated to fund extended reserve military service, and NIS 193 million (nearly $53 million) will be designated for salary agreements and the extension of grants for evacuees covering July and August.

Last month, the Israeli government deficit was 8.1% – one of the highest ever recorded – while the deficit ceiling set in the budget was 6.6% of the GDP. However, Chief Economist Shmuel Abramson recently revised his revenue forecast for 2024 upward by more than NIS 2.7 billion ($7.39 million).

Since the beginning of the year, the Israeli Tax Authority has collected about NIS 3 billion ($8.21 million) more than forecasted, an amount that nearly matches the expanded budgetary expenditures. These two facts may have encouraged Smotrich to make his announcement. 

Smotrich also claimed that some of the additional expenditures would be offset by reallocating funds from other parts of the budget. For example, NIS 100 million (about $27 million) will be redirected from an urban renewal allocation, NIS 84 million ($23 million) from funds earmarked for implementing agreements with local authorities, NIS 20 million (nearly $5.5 million) initially budgeted for the establishment of Kiryat Shmona University (a project now on hold due to the war), and another NIS 10 million ($2.74 million) from educational programs.

Opposition politicians pointed out that increasing spending without implementing balancing measures, such as raising taxes or cutting other expenditures, will lead to a higher deficit. Additionally, while the anticipated rise in state revenues is merely a forecast, the increased expenditures from the new budget represent a firm commitment.