The Government will Face Fiscal Challenges as 2024 Deficit Soars to 6.5% of the GDP

In a sobering revelation, the Ministry of Finance anticipates a staggering 6.5% deficit of the GDP for the year 2024, attributing the alarming shortfall to heightened expenses associated with financing ongoing military efforts. The updated draft of the budget proposal, yet to be officially distributed, sheds light on the financial predicament gripping the nation.

Despite the looming fiscal crisis, the draft does not propose measures such as cutting coalition funds or closing unnecessary government offices. Instead, a significant proposal outlines a horizontal 3% cut in the state budget for the year 2024. Notably absent from the draft is any mention of cutting additional credit points for parents of children aged 3-0, a move that has raised eyebrows among stakeholders.

The Ministry of Finance's draft introduces a controversial proposal to raise the Value Added Tax (VAT) rate by one percentage point in 2025, bringing it to 18%. This measure, initially opposed by Prime Minister Benjamin Netanyahu, is projected to generate an additional NIS 7.2 billion for the state in 2025. However, there is a caveat: if the debt-to-GDP ratio proves lower than the forecasted figures by November 1, 2023, the Finance Minister may consider canceling the proposed increase.

Expenditure in the 2024 budget is set to surge by NIS 68.4 billion compared to the previously approved budget for the year, reaching an approximate total of NIS 585 billion, excluding debt repayment.

Furthermore, the draft includes a tax hike on the banking system, with estimates from the Treasury predicting an additional NIS 1.4 billion in state revenues in 2024.

Specific cuts are outlined for various government offices, with the Ministry of Energy facing a reduction of NIS 18 million, the Ministry of Labor seeing a cut of approximately NIS 20 million, and the Ministry of Tourism losing NIS 36 million. The Ministry of Agriculture is set to endure a substantial cut of NIS 110 million, while the Ministry of Culture and Sports and the Ministry of Economy will see reductions of NIS 60 million and NIS 50 million, respectively.

Notably, the Ministry of Religious Services, the Ministry of the Negev and the Galilee, and the Ministry of Heritage will collectively face cuts totaling NIS 160 million. The Ministry of Health is bracing for a significant reduction of NIS 270 million, and the Ministry of Education is set to undergo a cut of NIS 160 million, specifically affecting state education and not ultra-Orthodox institutions. Additionally, a total cut of NIS 100 million is proposed for the support budget for non-government entities across all government ministries.

As the nation grapples with these proposed measures, a cabinet meeting scheduled for Sunday at noon will provide a platform for crucial discussions on the impending fiscal challenges. The absence of certain austerity measures in the draft, coupled with the contentious proposals, sets the stage for deliberations that could have far-reaching consequences for the economic landscape of the country.