Economists urge Netanyahu to change budget

Hundreds of influential Israeli economists are warning the government that it must make big economic changes quickly, including re-opening the country’s budget, as the war with Hamas approaches its fourth week.

The letter released Monday by the Israeli Economists’ Forum calls on Prime Minister Benjamin Netanyahu and Minister of Finance Bezalel Smotrich “to wake up and start responding to the tough challenges that the Israeli economy faces.”

More than 200,000 Israelis, mostly from the south, have been forced to relocate due to the war with Hamas. That’s a major cost the recent government budget didn’t account for. In turn, the economists want Israel to make an unprecedented move to reopen the 2024 budget, which was passed in May, after a bitter political fight.

“If there are expenditures in the budget that don’t relate to the war, or the necessary rebuilding, they must be re-thought,” said Itai Ater of Tel Aviv University’s Coller School of Management, who leads the Israeli Economists’ Forum.

Then there’s the cost of the war itself, including the 360,000 reservists that have been called to duty, which is more than 10% of Israel’s workforce. Large swaths of country’s economy have been closed due to the fighting, labor shortages and the national mood.

The letter also warns “Israel has sustained a severe blow that mandates a fundamental change in national priorities and a massive reallocation of funds to deal with the extensive war damage, the need to support the victims, and the rebuilding of Israel’s economy.”

The fighting is now squarely in Gaza with Israel attacking from the land, air and sea. It started after the deadliest terrorist attack in Israel’s history Oct. 7, when Hamas militants tore through Israel’s southern barrier killing 1,400 people and taking more than 200 hostages.

Since then, Israel has also come under fire, although at a lower scale, on the northern borders with both Lebanon and Syria, as well.

The forum of 300 economists was founded in January of this year, to caution the government about the potentially dire economic consequences of Netanyahu’s push for judicial reform. That divisive political fight has subsided, taken over by a devastating and costly war that most Israelis never imagined could happen.

The forum’s letter goes on to say: “Cosmetic changes to the current budget are not even close to what is needed to deal with a crisis of this magnitude, the government must face these challenges as quickly as possible, and it must restore citizens’ confidence in its ability to do so.”

While not addressed in the letter, Ater said a good place to start is to lower the amount of money given to ultra-Orthodox Jews for what he called “non-core education.” 

Funding for ultra-Orthodox or Haredi schools in Israel is a constant area of debate due to the outsized role that population plays in Israel’s government. Ultra-Orthodox parties have often been a swing vote to strengthening or establishing a coalition in the Knesset. In order to win their support, politicians, most recently Netanyahu, have been accused of catering to ultra-Orthodox parties with generous government support for their schools.

The Economists’ Forum is asking for the absolute minimum needed at this stage to keep the economy from falling into an abyss, Ater said. He fears much more will be needed if the war intensifies.

The Ministry of Finance has not yet responded to the letter.