Governor of the Bank of Israel Urges Immediate Fiscal Measures for Defense Budget and Revenue Increase

In a crucial government meeting on Sunday, the Governor of the Bank of Israel, Prof. Amir Yaron, emphasized the need for significant adjustments to the 2024 budget. While touching upon various issues, Yaron highlighted two key concerns, with the defense budget taking center stage.

Yaron acknowledged the necessity of an immediate increase of NIS 20 billion in the defense budget. However, he cautioned that this proposal did not fully account for the expenses arising from a comprehensive multi-year security plan. He advocated for the formation of a committee involving military, Ministry of Defense, and civilian representatives to formulate a multi-year security concept, aligning expenses accordingly.

Emphasizing the importance of certainty and seriousness in government actions, Yaron proposed an immediate revenue-side adjustment. Specifically, he recommended raising the VAT by 1% to 18% in the current year. This move, according to Yaron, would demonstrate the government's commitment to addressing economic challenges.

While acknowledging positive steps in the proposed measures, Yaron stressed that the overall adjustments fell short of the necessary permanent increase of NIS 20 billion for the immediate security budget. He expressed concerns about the limited impact of spending-side measures and underscored the urgency of adopting revenue-increasing measures, such as VAT adjustments.

Yaron urged swift implementation of these measures to convince the public and global markets of the government's determination to maintain a reliable fiscal path. He suggested advancing the implementation of revenue-side adjustments, such as VAT, preferably by 2024 or no later than the beginning of 2025, given the magnitude of the required fiscal adjustments.