Israeli economists urge Netanyahu to reopen nation’s budget to account for war

Hundreds of influential Israeli economists are warning the government that it must quickly make major economic changes, including reopening the country’s budget, as the war with Hamas enters its fourth week.

The letter released Monday by the Israel Economists Forum calls on Prime Minister Benjamin Netanyahu and Finance Minister Bezalel Smotrich to “wake up and start responding to the difficult challenges facing the Israeli economy.”

More than 200,000 Israelis, mostly from the south, have been forced to relocate due to the war with Hamas. This is a significant cost that was not accounted for in the recent state budget. In turn, economists want Israel to make an unprecedented move to reopen the 2024 budget, which was passed in May after a bitter political battle.

“If there are expenditures in the budget that are not related to the war or the necessary reconstruction, they need to be reconsidered,” said Itai Ater of Tel Aviv University’s Coller School of Management, who heads the Israel Economists Forum.

Then there are the costs of the war itself, including the 360,000 reservists who have been called to duty, which is more than 10% of Israel’s workforce. Large areas of the country’s economy have been shut down due to fighting, labor shortages and the national mood.

The letter also warns “Israel has suffered a serious blow that requires a fundamental shift in national priorities and a massive reallocation of funds to address the extensive war damage, the need for victim support and the rebuilding of Israel’s economy.”

The fighting is now in Gaza with Israel attacking by land, air and sea. It began after the deadliest terror attack in Israel’s history on October 7, when Hamas militants breached Israel’s southern barrier, killing 1,400 people and taking more than 200 hostages.

Since then, Israel has also come under fire, albeit on a smaller scale, on its northern borders with both Lebanon and Syria.

The forum of 300 economists was set up in January this year to warn the government about the potentially dire economic consequences Netanyahu’s push for judicial reform. This divisive political struggle has subsided, dominated by a devastating and costly war that most Israelis never imagined could happen.

The forum’s letter continues: “The cosmetic changes in the current budget are not even close to what is needed to address a crisis of this magnitude, the government must address these challenges as soon as possible and must restore public confidence in his ability to do so.”

Although not mentioned in the letter, Ater said a good place to start would be to reduce the amount of money given to ultra-Orthodox Jews for what he called “non-basic education.”

Funding for ultra-Orthodox or Haredi schools in Israel is an ongoing area of ​​debate due to the outsized role the population plays in Israel’s government. Ultra-Orthodox parties often constituted a swing vote to strengthen or form a coalition in the Knesset. To gain their support, politicians, more recently Netanyahuhave been accused of catering to ultra-Orthodox parties with generous government support to their schools.

The economists’ forum is calling for the absolute minimum needed at this stage to prevent the economy from falling into the abyss, Ater said. He fears that much more will be needed if the war intensifies.

The finance ministry has yet to respond to the letter.