The Israeli Ministry of Finance said that the Economic Arrangements Bill will be attached to the budget for next year 2025. It includes imposing new taxes on bank profits and privatising the Ashdod Port—the only one owned by the government. These austerity decisions are being imposed at a time when there is a fear that the scope of the war will expand to the northern front and the costs of the war on Gaza will increase.

How the economy is faring

Concern is growing about the state of the Israeli economy and the government's management of financial affairs. There is also fear that the war with Gaza will continue to escalate. This is happening now.  Already, the Israelis are invading Lebanon to attack Hezbollah. Uncertainty about what may happen next casts a shadow over financial markets.

The Economic Arrangements Bill proposes imposing a special tax on banks in 2026, according to the English version of the Israeli newspaper Globes. The bill includes a proposal to close five redundant ministries (out of 31 ministries), tighten oversight of the defence budget, especially regarding salaries and pensions, major agreements with municipalities to speed up housing construction as well as reforms to the Finance Ministry for the coming year, including in the areas of finance, real estate, and government companies. However, the bill does not include freezing income tax or national security pensions and insurance.

Plans to privatise the Ashdod Port continue, and an interministerial committee will be formed to expedite the selling of port shares. The committee will submit the privatisation proposal to Israeli Regional Cooperation Minister David Amsalem within 60 days and to the Ministerial Committee for Privatisation within 90 days.

The bill also proposes that ministers not interfere distributing government companies' profits and amend the Government Companies Law to facilitate transferring profits to the state treasury.

The Economic Arrangements Bill also proposes adopting a five-day school week instead of a six-day one in the public school system. This aligns with the workweek and is designed to help the education system deal with the teacher shortage.

Recent data released by the Israeli Central Bureau of Statistics showed that annual inflation in Israel rose to 3.6 percent and that real estate prices continue to rise sharply. The consumer price index in Israel also rose by 0.9 percent in August, which is much higher than analysts' expectations, ranging between 0.5 percent and 0.6 percent.

According to the Bank of Israel, the country's foreign exchange reserves fell by about USD 5.63 billion at the end of April, reaching USD 208 billion. Foreign exchange reserves also fell by about 41 percent relative to GDP.

Fitch Ratings had previously downgraded Israel's credit rating to A from A-plus due to increased security risks and the ongoing war in Gaza. Fitch maintained its negative outlook in its statement, meaning there is a possibility of further downgrades in the credit rating amid the ongoing war that has been going on since October 7 and has caused a massive humanitarian crisis in the Gaza Strip.

Israel's GDP growth data reflected a "worrying picture," with growth slowing in the second quarter to 1.2 percent year-on-year compared to the previous quarter.

Israeli Finance Minister Bezalel Smotrich had previously announced the country's general budget for the coming year, which included allocating 160 billion shekels (about USD 44 billion) to war spending and security. The budget presentation also included 44 billion shekels (about USD 11 billion) for civilian needs and 20 billion Shekels (about USD 5.5 billion) for reconstruction.

Smotrich said that 9 billion Shekels would be allocated to reserve soldiers and 10 billion to displaced communities adjacent to the country's southern and northern fronts. Some 1.4 billion Shekels will be spent on social and mental health care, and 16 billion Shekels will be spent compensating companies that incurred losses in downturns due to the ongoing war.

Photo: There are plans to privatise Ashdod Port in Israel. (by Adobe).