State budget passes first Knesset plenum reading; Gallant skips vote

The Knesset on Monday approved in its first reading the state’s 2023-2024 budget, advancing the nearly trillion shekel two-year proposal to committee discussion, as rowdy demonstrations for and against the government’s judicial overhaul took place outside.

The budget presented by the government allocates NIS 484.8 billion ($133 billion) in 2023 and NIS 513.7 billion in 2024 ($141 billion), up from NIS 452.5 billion ($124 billion) in 2022.

The budget passed by a vote of 63-55. Defense Minister Yoav Gallant was notably absent from the plenum, a day after he was fired from his role for publicly calling to stop the judicial legislation.

Coalition lawmakers filibustered the process, to allow Prime Minister Benjamin Netanyahu and National Security Minister Itamar Ben Gvir to arrive at the plenum for the vote, as they negotiated over the latter’s refusal to pause the overhaul.

In exchange for the delay to the process, which Netanyahu announced after the budget vote passed, Ben Gvir’s Otzma Yehudit party said the premier agreed to advance the planned formation of a “national guard” directly subordinate to the minister.

Netanyahu said in a televised speech that he was pausing the legislative process for some weeks to allow negotiations with the opposition on an agreed-upon reform.

Netanyahu’s government has until May 29 to successfully complete the two remaining budget votes on the Knesset floor or risk automatically triggering the government’s collapse.

The budget passed, as over 100,000 people protested outside the Knesset against the judicial overhaul in the afternoon. In the evening, tens of thousands attended a right-wing rally in favor of the shake-up.

Presenting the budget to the Knesset, Finance Minister Bezalel Smotrich hailed it as a “critical step” for promoting economic stability, and said Israel was heading into the current global economic crisis in better condition “than any other country in the world.”

“We can come out of it first, and strong. We are presenting a responsible budget that will help stabilize the economy and prevent the worsening of inflation. The greatest service that can be done for Israeli citizens is to fight against inflation,” he said.

Smotrich expressed hope that the opposition would support the budget, saying “We will continue to argue over things that we don’t agree on,” but that it could “identify with a lot of things within this budget.”

Yisrael Beytenu chair Avigdor Liberman, Smotrich’s predecessor in the Finance Ministry, warned the Knesset that the economy was in danger of collapse.

“The State of Israel, beginning from June, will arrive at the worst economic crisis we have known in recent years,” he said.

Growing 7% from 2022 to 2023, the topline budget does not take into account inflation and recent warnings from senior finance officials that state revenues are likely to shrink due to expected economic harm connected to the coalition’s ongoing push to increase its own power at the expense of the judiciary.

Upon the release of the budget, a Finance Ministry spokesperson released a statement saying that among its chief objectives are reducing the cost of living, reducing market concentration and business sector bureaucratic barriers, developing infrastructure and housing stock, and combating undeclared money.

Yet critics maintain that the budget does not go far enough to reduce the soaring cost of living, a common political promise and the most top-of-mind issue for November’s general election voters.

Chief Finance Ministry economist Shira Greenberg recently reduced 2023 budget year revenue forecasts by NIS 10 billion, to just NIS 437 billion, creating a nearly NIS 52 billion operating deficit in 2023.

In line with this, Greenberg last week warned of a potential annual contraction in state revenues of up to NIS 100 billion linked to potential damage to Israel’s democratic and governance rankings, credit rating downgrade, and investor skittishness if the judicial overhaul passes. Bank of Israel Governor Amir Yaron echoed these concerns to CNN, saying the “hasty” judicial shakeup was frightening investors, who are the lifeblood of Israel’s lucrative tech sector.

Last Monday, Greenberg warned Smotrich that “damage to state revenues may begin to manifest itself closely following the reform’s implementation,” and given the government’s timeline, she recommended revising the revenue forecasts upon which the 2023-2034 budget was built.

Carrie Keller-Lyn contributed to this report.