This is how the Israeli government will pay for the Gaza war

Finance


Israel plans to take out a loan of $60 billion, freeze hiring in government offices, and raise taxes in order to pay for the ongoing war in Gaza, the Finance Ministry’s chief accountant, Yali Rothenberg, as reported by the Financial Times.

Currently, the country is facing a major economic crisis, with major expenses due to the war and reconstruction efforts expected to reach tens of billions of shekels. Right now, Israel is close to doubling defense spending in order to continue to finance the war in Gaza.

Since the war began on October 7, Israel has called up over 300,000 reservist soldiers, while tens of thousands of civilians were evacuated from their homes in the North and South of the country, and private spending plummeted.

At the same time, around 150,000 Palestinian workers were prevented from entering Israel from the West Bank, impacting, among several sectors of the economy, such as the construction industry.

However, Rothenberg said he expects the Israeli economy to start recovering, as a large number of reservist soldiers have already been released from service, and private expenses will increase. According to him, “The economic foundations are there. Looking at the hi-tech sector, it’s there. Even looking at investments in infrastructure and private spending… everything will come back up.”

An Israeli is seen picking out ‘Angel’ bread in a supermarket, May 7, 2023 (credit: MARC ISRAEL SELLEM/THE JERUSALEM POST)

How will the government raise money to offset increased spending?

Rothenberg also added that in 2023, the government increased spending by about NIS 26 billion due to the war, with an additional NIS 4.7 billion allocated to security, as the Finance Ministry issued special approvals to allow the government to operate outside the budget framework immediately after the Hamas attack on October 7. In an attempt to balance the numbers, the Finance Ministry is planning to raise VAT to 18% in 2025, while in 2024, taxes on tobacco and banking will increase, and public sector wage increases will be frozen.







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