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Israel budget plans for Gaza war to last through February, widening deficit

Israeli Finance Minister Bezalel Smotrich attends an inauguration event for Israel’s new light rail line for the Tel Aviv metropolitan area, in Petah Tikva, Israel, August 17, 2023. REUTERS/Amir Cohen/File Photo 

Israel’s Finance Ministry stated on Monday that the ongoing war with Hamas in Gaza is projected to cost the country at least another 50 billion shekels ($14 billion) in 2024. The Finance Ministry anticipates that the conflict will extend through February, adding 30 billion shekels for security and 20 billion for civilian and other expenses. This would result in total defense spending exceeding the initial allocation by more than 48 billion shekels.

The projected budget for 2024 is expected to rise to 562.1 billion shekels from the planned 513.7 billion, leading to a budget deficit of 5.9% of the gross domestic product, up from the targeted 2.25%. To address the widened deficit, options include cutting other expenses or raising revenue.

The Finance Ministry emphasized the uncertainty of planning for the possibility that the war might extend into March or beyond. Parliament previously approved a special war budget for 2023 of nearly 30 billion shekels to fund the conflict and compensate those affected by the cross-border attacks by Hamas on October 7.

Regarding taxation, Moshe Gafni, chairman of the finance committee, expressed opposition to raising income taxes but supported taxes on excess bank profits and measures to promote economic growth.

Finance Minister Bezalel Smotrich emphasized the priority of assisting reservists and their families in 2024. He mentioned ongoing work on a comprehensive plan by the finance and defense ministries for the benefit of reservists and their families. Around 350,000 people have been called into reserves since the beginning of the war.

The Finance Ministry estimated a fourth-quarter economic contraction of an annualized 19% from the third quarter, which had seen growth of 2.5%. The projection for all of 2023 is a growth of 2%, or flat per capita growth, with an expected 1.6% growth in 2024. The annual inflation rate is anticipated to end the year at 3.1% and ease to 2.6% in the following year.

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