In response to delays in the 2025 budget approval process, Israel's Ministry of Finance has quietly developed a contingency plan to address potential fiscal challenges. Sources within the ministry have revealed to Globes that the plan, spearheaded by Director General Shlomi Heizler, outlines a series of "soft" fiscal consolidation measures totaling up to 25 billion shekels (approximately 1% of GDP).
Key elements of the proposed plan include:
1. Merging the two lowest income tax brackets, potentially increasing tax burdens on low-income earners
2. Equalizing child allowances across all family sizes, a move likely to face opposition from ultra-Orthodox parties
3. Freezing various fiscal adjustments, including updates to tax brackets, credit points, and minimum wage increases
The ministry is also revisiting previously unsuccessful proposals, such as eliminating tax exemptions on personal imports under $75 and imposing VAT on foreign digital services—colloquially known as the "Netflix tax."
While Finance Minister Bezalel Smotrich is aware of these discussions, he has not been directly involved in crafting the contingency plan. The proposal will ultimately require political approval to be implemented, raising questions about its feasibility given the current administration's reluctance to enact potentially unpopular fiscal measures, as reported by Globes.
Treasury officials, speaking on condition of anonymity, suggest that external pressures—including planned increases in defense spending, concerns over potential credit rating downgrades, and the need to maintain Israel's standing with foreign investors—may force the government's hand.
The current situation draws parallels to 2003, when then-Finance Minister Benjamin Netanyahu pushed through significant fiscal reforms. However, in a notable shift, Netanyahu, now Prime Minister, appears to be among those hesitant to embrace such measures.
As the September 15th deadline for finalizing legislative proposals approaches, all eyes are on the political echelon to see how they will navigate these complex fiscal challenges in an increasingly uncertain economic landscape.