The series of bills that make up the 2025 budget were officially brought to the Knesset for them to begin their legislation process, over a month after the final deadline permitted by law.The delay, however, does not bear political consequences. According to Finance Minister Bezalel Smotrich, the budget will pass by the end of January – and during January the government will work with a “continuing budget” based on spending in 2024.The total budget for 2025 will be NIS 706 billion and include budget cuts relative to the 2024 budget, totaling NIS 37b., to fund deficits created due to the war. Out of the total budget, NIS 136b. will go toward paying government debt. The budget deficit at the end of 2025 will be 4.3%.The budget includes funds for “reserve fighters, compensation for victims, grants for businesses in war zones and across the country, restoration of the North and South, and additions of billions of shekels to the variety of war needs, at the military front and on the home front,” according to a joint statement by Smotrich and Knesset Speaker MK Amir Ohana (Likud).
The budget proposal also includes a series of tax hikes, including a VAT hike from 17% to 18%, a freezing of salary hikes in the public sector, and a controversial measure to tax “trapped profits,” which are corporate profits that remain both uninvested and undistributed and are therefore exempt from a dividend tax.
Amending the 2024 budget
Finance Ministry officials have argued that taxation of “trapped profits” fixes a loophole and would increase national income by approximately NIS 5b. annually. However, business leaders have argued that the tax will harm businesses and drive capital abroad.The bills will be prepared in the Knesset Finance Committee, chaired by UTJ MK Moshe Gafni. Failure to approve the budget by the end of March would trigger new elections.
The 2025 budget bills came as the government is also attempting to amend the 2024 budget for the third time. The amendment is to increase the 2024 deficit from 6.6% to 7.7%, in the wake of a delay in US aid that will only arrive in 2025.