Top Israeli economists urge PM to cancel billions of unneeded spending

A group of 300 of Israel’s most senior economists called on Prime Minister Benjamin Netanyahu to divert state funds from non-essential items to areas that deal with damage from its war with Hamas, aid to victims and restoration of the economy.

In a letter to Netanyahu and Finance Minister Bezalel Smotrich, the economists, including former Bank of Israel Governor Jacob Frenkel, said expenses as a result of the conflict would cost at least tens of billions of shekels.

Smotrich has said the government would spend as much as needed and this has caused alarm with the central bank and economists, especially since the government may still go ahead with transferring some 9 billion shekels ($2.2 billion) to ultra-Orthodox and far-right-wing pro-settler parties as part of an agreement to join the ruling coalition.

These funds were highly contentious within the finance ministry since much of the funds were aimed at encouraging ultra-Orthodox men to not join the workforce.

The economists, including former Netanyahu adviser Eugene Kandel and Leo Leiderman, economic adviser to Bank Hapoalim, said that cosmetic changes within the existing budget do not come close to the required scope of needed spending on the war and compensation for those affected.

“The government must face the challenges as soon as possible and try to restore the citizens’ trust in its ability to do so.

A basic and necessary step for this is an immediate stop of the financing of all activities that are not essential to the war effort and the reconstruction of the economy, and first and foremost the coalition funds,” the letter, seen by Reuters, said.

Netanyahu and Smotrich, the letter said, need to go through the 2023 budget and cancel all non-essential budget items while the 2024 budget must be reopened to be updated with priorities that reflect the needs of the economy due to the war.

Netanyahu’s office did not immediately comment while a spokesman for Smotrich said there will be a change in reallocating state funding.

Hamas gunmen from Gaza launched the deadliest attack on Israel’s civilians in the country’s history on Oct. 7 and Israel has since bombarded Gaza with the goal of eliminating the militant group. Tens of thousands of Israelis near the border have been evacuated into hotels.

The central bank last week estimated the budget deficit would be 2.3 percent of gross domestic product in 2023 and 3.5 percent in 2024, versus a surplus in 2022, in the event that the conflict stayed contained to Gaza and did not spread to other fronts.