Israel's Netanyahu faces budget test amid economic, political woes
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[May 16, 2023]
By Steven Scheer and Maayan Lubell
JERUSALEM (Reuters) - Prime Minister Benjamin Netanyahu faces a test
this month when his coalition of nationalist and religious parties seeks
approval for a spending package which the government's own budget unit
says will stifle growth.
Lawmakers must approve the bi-annual 2023-24 budget package by the end
of May to avoid triggering an election. With 64 of parliament's 120
seats, Netanyahu's coalition appears on course to vote it through.
But economists say the spending plans could derail the government's own
fiscal targets, while even the Finance Ministry says it could slow
growth.
Israelis are already grappling with rising living costs, while the
economy has been knocked by the government's now-suspended judicial
overhaul which triggered a political crisis, drove away investment and
cut growth prospects.
Three economists said the government's deficit targets of 1% of gross
domestic product in 2023 and 0.8% in 2024 could double or triple in
size, which could send bond yields up.
"Projections were too optimistic," Victor Bahar, Bank Hapoalim's chief
economist, told Reuters.
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An official in Netanyahu's office played down concerns, saying: "The
prime minister along with the finance minister intend to pass a
responsible budget in the coming weeks that will serve all Israelis. The
budget will enhance stability and growth."
Strained by months of unprecedented street protests, Western disapproval
and plummeting polls, the government has set 13.7 billion shekels ($3.8
billion) for "coalition funds", money to finance political deals with
the ultra-Orthodox Jewish and pro-settler parties on which Netanyahu's
coalition depends.
The funds include adding hundreds of millions of shekels to stipends and
schooling for the ultra-Orthodox community, which limits study of
non-religious subjects like math and English, while its men focus on
scripture and live off benefits.
The ultra-Orthodox, or Haredim, are only 13% of Israel's population but
they are a fast-growing sector many of whose men - around half - are
jobless. Many opt not to work, while those that do seek a job are often
ill-equipped for employment.
The Finance Ministry's budget division, in an unusual analysis on
Thursday, said the government would reverse economic incentives to
encourage Haredim into the workforce by increasing spending on religious
schools, food stamps and stipends.
Those steps would impact growth in the immediate and medium term, the
analysis said, and would eventually hurt the "productivity, growth and
quality of life of all Israelis."
'NO CRISIS'
For Haredi leaders, scripture comes first.
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![](../images/051623pix/news_a54.jpg)
Israeli Prime Minister Benjamin
Netanyahu chairs a cabinet meeting at his office in Jerusalem, May
14, 2023. Gil Cohen-Magen/Pool via REUTERS
![](http://archives.lincolndailynews.com/2023/May/16/images/ads/current/graue_lda_preowned_Buickencore_011323.jpg)
"The finance clerks don't understand Haredim," ultra-Orthodox
lawmaker Yizhak Pindrus told Kan radio. "There will be no Israeli
society, no Jewish society if there will be no people devoting their
lives to Torah study."
Finance Minister Bezalel Smotrich said the funds would fix years of
injustice toward the Haredim, whose children often are packed into
derelict classrooms. He said other steps would be taken to help
Haredim find jobs.
"There is no crisis here," he said, pointing to a fiscal surplus so
far in 2023 and a responsible budget.
But Michael Eisenberg, of Israeli venture capital firm Aleph, said
the extra spending would fuel inflation, hamper growth and "cost
Israel dearly, the ultra-Orthodox public too."
Government figures already forecast Israel's economic growth will
ease in 2023 from 6.5% in 2022 to about 2.7% and down from the 3%
forecast in January.
Credit ratings agency S&P forecasts growth of just 1.5% for 2023 and
says it could slow further because of political uncertainty over the
government's suspended drive to limit the role of the Supreme Court
in its judicial changes.
Since returning to office in December, Netanyahu has fired his
defence minister over his opposition to the judicial drive and then
backtracked. He suspended the overhaul to allow for talks with the
opposition and has faced a vote boycott by far-right minister Itamar
Ben-Gvir.
The judicial drive has led to a drop in foreign investment and
prompted some capital flight. The shekel has weakened and Moody's
has lowered Israel's outlook to stable.
Judicial negotiations seeking broad agreements that would likely
stave off further damage have so far been fruitless and some are
concerned the budget does not properly factor in sharply slowing
growth, potentially causing more damage.
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"Netanyahu has sold Israel's economy and our children's future in
order to stay in power," said opposition leader Yair Lapid.
($1 = 3.6280 shekels)
(Writing by Maayan Lubell; Editing by James Mackenzie and Edmund
Blair)
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