Bezalel Smotrich speaking about the budget in a June Knesset meeting (video clip)

The fiscal health of Israel has taken a significant hit, with the Ministry of Finance accountant general Yali Rothenberg revealing that the fiscal deficit has skyrocketed to a staggering 7.6% of GDP over the past 12 months. This alarming increase translates to NIS 146 billion, reflecting a sharp rise from 7.2% at the end of May.

A Spiraling Deficit:
The fiscal deficit, which stood at 6.2% in March, has consistently widened month after month. By April, it had reached 7%, and by May, it was at 7.2%. The trend continued into June, driven by surging military and civilian expenditures. The June deficit alone accounted for NIS 14.6 billion, more than double the NIS 6.4 billion recorded in June 2023.

Soaring Government Expenditures:
In June, government expenditure hit NIS 51.2 billion, pushing the total spending since the beginning of the year to NIS 300.3 billion. This marks a dramatic 34% increase compared to the same period in 2023. The financial strain has been exacerbated by the war costs following the October 7 Hamas onslaught, which have ballooned to an astronomical NIS 80.5 billion.

Deficit vs. Revenue:
Since the start of 2024, the fiscal deficit has accumulated to NIS 62.3 billion, a stark contrast to the surplus of NIS 6.6 billion during the first half of 2023. Even when excluding war expenses, government spending surged by 9.3%, while state revenues grew by a mere 3.3%, totaling NIS 238 billion compared to NIS 230.4 billion in the first half of 2023.

Ministry of Finance's Projections:
Despite the current financial turmoil, the Ministry of Finance estimates that the deficit will peak by September before declining. The budget department remains cautiously optimistic, believing the deficit will eventually converge downwards to the 6.6% target set for the end of 2024.

Controversial Allocations Amid Wartime Deficit:
Amid this financial strain, the Knesset Finance Committee has faced sharp criticism for its recent decisions. On Tuesday, the committee allocated hundreds of millions of shekels in โ€œsurplusโ€ coalition funds to various government ministries. This decision comes despite the growing public deficit and ongoing war costs.

Key Allocations:

  • Prime Ministerโ€™s Office: NIS 1.19 billion ($316 million) from the 2023 surplus funds.
  • Settlements and National Projects Ministry: NIS 302 million ($80 million).
  • Social Equality Ministry: NIS 94 million ($25 million).
  • Heritage Ministry: NIS 21 million ($5.6 million).

Opposition's Outcry:
Opposition Leader Yair Lapid lambasted the coalitionโ€™s priorities, accusing them of neglecting the urgent financial needs of the war effort. โ€œThe only thing they can be trusted with is that they will transfer the coalition funds on time,โ€ Lapid charged in the Knesset plenum. โ€œThis they wonโ€™t forget. Itโ€™s the only thing they still know how to do.โ€

In light of the escalating fiscal crisis, the Finance Ministry had previously recommended shutting down several ministries, including the Settlements and National Projects Ministry, to reallocate funds towards the war effort. However, these recommendations have been overshadowed by the coalitionโ€™s recent decisions.

Israelโ€™s fiscal deficit has reached unprecedented levels, driven by soaring war expenditures and increased government spending. As the Ministry of Finance grapples with these financial challenges, the nation watches closely to see how the government will address this mounting crisis and whether the projected decline in the deficit will materialize in the coming months.

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