Finance Minister Bezalel Smotrich sent a scathing letter to Finance Ministry Budget Department head Yogev Gradus Tuesday, inviting him to resign if he does not want to comply with the minister’s policies.
The letter comes at a time of economic uncertainty caused by the Israel-Hamas war and the government’s response to its economic impacts. It followed a letter from Gradus to the minister, urging him to make necessary adaptations to the 2025 budget and not to reopen the 2024 budget.
In his response, Smotrich insisted that Gradus prepare an “out-of-budget box” to cover funding for evacuees of the Israel-Hamas war.
An out-of-budget box is a tool that enables Israel’s government to spend money outside of the budget without finding funding sources and was used during the coronavirus pandemic to handle its costs, Ynet reported.
Smotrich also accused Gardus of leaks to the press and attempts to undermine his policy in the letter, ultimately telling him that “if you don’t identify with my economic policy and feel that you have a hard time fulfilling it, you are invited to [resign].”
The dispute comes as Israel is facing a great deal of economic uncertainty, and its leadership has come under fire for not doing more to stabilize the economy and instill confidence.
Smotrich has been widely criticized for apparently failing to advance talks on the 2025 budget and the passing of measures intended to handle the economic fallout of the Israel-Hamas war, such as a 1% VAT increase.
Earlier this month, big three ratings company Fitch Ratings dropped Israel’s credit rating and maintained its negative outlook, citing the government’s apparent inability to pass necessary economic measures as partly responsible for the ratings drop.
There was also widespread criticism of the priorities displayed in a March update to the 2024 budget which was meant to handle the costs of the war.
Coalition funds were only partially cut in this update, and ministries seen as unnecessary coalition ministries were not closed in order to fund war costs.
The dispute between the finance minister and the professional responsible for Israel’s budget does not contribute to a sense of confidence in Israel’s economy. The fact that the argument relates to the core issue of the country’s budget and how to afford funds for those harmed by the war is even less reassuring.
Criticism from economists
The suggestion that Gradus should resign raises the question of what this would do to the already faltering confidence in Israel’s economic situation.
"The statement towards the head of the budget department is nothing less than outrageous," said former INSS head, economist Prof Manuel Trajtenberg.
"Especially given the difficult situation Israel finds itself in, including the economic situation, a strong, professional, responsible budget department is more necessary than ever," he added.
"The head of the budget department is among a small group of senior officials in central government offices who are trying with all their might to manage the civil service responsibly and wisely during this difficult time."
"Any attempt to harm them, to weaken them, or to make them leave their jobs is within the scope of undermining the foundations of the country"
Presenting another take, this would not be the first time that a budget department head leaves after disagreements with the finance minister, said Ben Gurion University of the Negev’s Professor Emeritus Moshe Justman.
“The sky did not fall,” when that happened, Justman said, adding that Gradus’ resignation, should it happen, would not have an impact on the economy or decisions made by investors.
“The responsibility for the function of the Finance Ministry is laid on the shoulders of the finance minister and the government, and the role of the professional echelon is to advise on creating police and help enact the chosen policy,” he added, giving context to Smotrich’s insistence that Gradus fall in line.
“The economic decisions made in the finance ministry necessarily balance the different and sometimes opposed needs, and balance is a political matter,” he explained.
The situation today, which includes “extreme uncertainty and urgent and important demands on many fronts – security, economic, and social– means that building a budget that can be passed as difficult work,” he explained.
Justman added that the head of the budget department has a great responsibility in helping to build a budget that balances different needs and is possible to pass in the Knesset.
Ben Gurion University Senior Lecturer Dr. David Lagziel offered a different take, emphasizing the potential harm of some budget actions.
“A policy that calls for opening the 2024 budget again and again or engineering a two-year budget for the next two years will hurt Israel’s economy,” he said.
“There is real danger for a quick deterioration of Israel’s economy and an additional drop of the credit rating.”
“Only responsible and professional work, such as the [Bank of Israel] governor and senior Finance Ministry officials are suggesting, can reduce these risks.”
There is sweeping agreement among economists that a responsible budget is necessary for handling the costs of the war, Lagziel said.
He also emphasized the professionalism of Gradus, calling him a man of his profession and saying that he is working “in accordance with existing professional knowledge” to advance the 2025 budget.
Gradus’ professional stance that a responsible budget is needed is not political and is not confined to Israel, he added.
“We recently were given a meaningful reminder of these things from all ratings agencies and from big banks around the world, JP Morgan and Citibank among them,” he said.
Steven Scheer/Reuters contributed to this report.