Israel’s government has passed a revised 2023 budget that retains discretionary spending for religious schools and other priorities sought by coalition partners, despite warnings that doing so would burden the economy as the nation presses its war against Hamas.
All the members of Benny Gantz’s opposition party, which joined the government to run the war, voted against the revised budget. So did Economy Minister Nir Barkat, a member of Prime Minister Benjamin Netanyahu’s Likud party, writing on X that the government was conveying a message of "anti-economic growth.”
Netanyahu rejected such complaints. "We have challenges ahead but because we have built a strong economy here, we are able to pass a budget to accommodate all needs of war,” he said.
Although the special allotments are a fraction of the total budget, they’ve become a marker of competing priorities as Israel confronts its worst armed conflict in half a century. For Netanyahu and his allies, the funding may be key to political survival. In May, some of the religious and right-wing parties threatened to bring down the coalition unless the spending was agreed to.
The discretionary money, some 14 billion Israeli shekels ($3.6 billion), will largely go toward religious schools — some of them exempt from teaching subjects like English and math — and projects including the development of Jewish settlements in the West Bank and other causes championed by right-wing members of the ruling coalition.
The war began on Oct. 7 when Hamas, which is designated a terrorist organization by the U.S. and European Union, crossed from Gaza into southern Israel and killed 1,200 people while abducting 240 others. More than 14,000 people have died in Gaza as Israel struck back, according to the Hamas-run health ministry.
The revised budget allocates 17 billion shekels to military expenses and 8.8 billion shekels to wartime civilian expenses, such as evacuations, along the northern and southern borders, and reconstruction of communities destroyed by the attacks.
The government’s stance has drawn the ire of investors and many top economists. In a letter sent several weeks ago, 300 prominent economists from Israel and abroad urged Netanyahu and allies to "immediately come to your senses.”
"A basic and necessary step would be to halt financing of anything unessential to war, first and foremost the coalition funds,” the group said in the letter signed by the likes of Nobel economics laureate Josh Angrist.
The Bank of Israel projects that gross defense expenditures for the war will be 107 billion shekels, and civilian expenses 47 billion shekels. Combined with an 8-billion-shekel interest on debt and a 35-billion-shekel loss of tax revenue, the total cost of war is estimated at 197 billion shekels.
Central Bank Gov. Amir Yaron said Monday that the government must demonstrate its commitment to fiscal responsibility "by material decisions to reduce expenditures that have become less essential.” The cuts should be through adjustments on items that have a permanent impact and that make a lower contribution to economic growth, he said.
The budget deficit is set at 3.7% of GDP, almost 1% higher than anticipated on the eve of the war. Israel’s central bank estimates the overall cost of war as $53 billion, much of which will be funded by debt.
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