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Israel’s cabinet approves state budget, paving way for Knesset showdown

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The cabinet approved the Finance Ministry’s proposal for the state budget for 2021-2022, the first time it has done so in three years.

The state budget for 2021 will be about NIS 432.5 billion and in 2022 about NIS 452.5 billion. In 2021 the deficit will be 6.8% and in 2022, 3.9%.
The budget and accompanying Economic Arrangements Bill are some of the most complex and ambitious pieces of legislation ever presented, with dozens of far-reaching reforms that will affect every Israeli. However, “after having no budget since 2018, the main ‘reform’ is that there is a budget,” Finance Ministry Director-General Ram Belinkov said after the cabinet’s approval.

“This is one of the broadest and most significant economic programs in many years and it will accelerate the growth of the economy and make the Israeli economy more competitive,” Belinkov added. “The reforms that are being promoted within the framework of the economic plan put the citizen at the center to benefit from low prices and high-quality and accessible public services.”

The budget was approved after Health Minister Nitzan Horowitz was promised an extra two billion shekels for the Health Ministry budget.

Following the vote, the budget will go to the Knesset Finance Committee that will prepare it for the Knesset plenum, where it must pass into law after three readings by November 4. If it is not passed by that date, the government will automatically fall and new elections must be held.

Most of the proposed reforms are broadly seen as positive steps for the economy, and many are long overdue. However, many will face serious opposition from different sections of Israeli society in the coming months.

Among the significant reforms in the budget are:

A broad plan to open up the economy to greater imports to reduce the cost of living.

A gradual raising of the retirement age for women from 62 to 65.

Agricultural reforms that will increase competition and lower the prices of fruit, vegetables and eggs through a broad and gradual reduction in import tariffs.

Kashrut reforms that will allow competition and certification from other organizations.

A tax on sugary soft drinks, planned to reduce mass consumption of unhealthy beverages.

A tax on disposable tableware and utensils, planned to reduce environmental damage due to their widespread use.

New ‘smart governance’ regulations to significantly reduce excess regulation and bureaucracy in government offices. This plan is expected to make it easier for the business sector to emerge from the corona crisis and save NIS 75 billion over a decade, enabling GDP per capita growth of about 6% within a decade, the Finance Ministry said.

Approval of a metro project in the center of the country that will cost an estimated NIS 150 billion.

A plan to improve Israel’s public transportation infrastruture and make it a top national priority. As part of this, a congestion charge will be launched in 2024 that will force drivers to pay to enter the Gush Dan area in private vehicles during certain hours.

Increasing Israel’s employment rate and labor productivity by reforming the vocational training system and setting government employment targets for low-participation populations.

An educational program to transfer more authority to school principals for greater flexibility and data-based planning.  

Conversion of tens of millions of square meters of unused office space near residential neighborhoods into small apartments. In a briefing to journalists, Belinkov noted that a more comprehensive plan for Israel to address the housing crisis will be issued in the coming days in cooperation with the Housing Ministry, outside of the budget framework.

Promoting digitization as a tool to streamline government work and improve services to the public.

Promoting the export of medical cannabis to allow companies in the field to expand and diversify export options by removing existing barriers.

Encouraging the transition to clean energy by using green electricity sources and transitioning the economy toward electric-powered transportation. This involves increased investment in infrastructure as part of the exit strategy from the Corona crisis.

Simplifying the process of business licensing to reduce the cost of the licensing requirements, shorten licensing procedures, and bring them more into line with international standards.

Improving fire safety requirements set by the fire department for hundreds of thousands of properties in Israel.

A plan to increase competition and transparency within the banking system.

“After more than three years in which the state ran without a budget, in the early morning hours and after long discussions, we passed a responsible budget in the government alongside an unprecedented Arrangements Bill and brought great news to the country’s citizens,” Finance Minister Avigdor Liberman said following the announcement. “We have allocated huge amounts to infrastructure, transportation and real estate and passed significant reforms that will lower the barriers and reduce bureaucracy which will make it easier for everyone in their daily life, both businesses and privately. The road to approving the budget in the Knesset begins right now, and with close cooperation, we will pass it in three readings and ensure economic growth and governmental stability for the citizens of the State of Israel. “
Bank of Israel governor Amir Yaron applauded the approval, saying it will “buy stability for the economy, reduce uncertainty regarding the government’s economic policy, and accelerate the economy’s recovery from the corona crisis and increase employment.” He gave his blessing to the proposed 3.9% deficit for 2022, saying it was in line with the central bank’s recommendations. “In light of the risks of the economic recovery, it is good that the government is not already reducing the structural deficit in the current budget, nor is it raising it,” he said.  


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