The ultra-Orthodox community has been worried about the High Court of Justice's ruling that orders its young men to be drafted into the army and end government subsidies for day care, yeshiva, and kollel study should they refuse. These sanctions are seen by the Haredi community as a threat to many ultra-Orthodox households' ability to manage financially. But this is only the first blow of many that the Haredi public should soon be feeling from higher taxes and government spending cuts.
Except that the government is doing everything it can to avoid such measures, and that threatens the state's ability to raise debt in the financial markets. On Monday, the international ratings company Fitch, lowered Israel's credit rating, joining its two colleagues, S&P Global and Moody's, which had done the same a just few months earlier.
All three also assigned Israel a negative outlook, which is akin to a yellow card in soccer – another fumble and they will put out a second one and Israel's rating will go down another notch.
A lower credit rating has serious consequences for Israel at a time when it needs a great deal of money to help cover the cost of the Gaza war. It also has implications for foreign investment and the ability of private sector companies to borrow money at reasonable rates of interest.
The result will be slower economic growth, increased debt-repayment costs, higher mortgage rates, which will have a direct impact on Israeli household budgets. As usual, the poor and disadvantaged will be hurt the most. Indeed, they are already feeling the pinch.
The situation requires the government to take two important decisions – one is to end the war (the war on terror will continue for the foreseeable future) and to prepare a state budget for 2025. The budget must include tax and spending adjustments, and in the case of the latter it means shutting down superfluous ministries and cutting coalition spending. But even that will not be enough. The budget will need to include measures to spur economic growth, including more spending on infrastructure, education and professional training.
There is just one problem. Each of the items on the to-do list for reviving the economy and saving it from a crisis is opposed by one or more segments of the coalition. Far-right ministers are not prepared to hear anything about ending the war. The Haredi parties are not interested in their young acquiring the tools needed to live in a modern economy.
Freezing government allowances and wages will run up against strong opposition from, respectively, the Haredim and the Histadrut labor federation. The ministers who oversee useless ministries are not ready to lose the budgets they have and the money that has been allocated for their bases. The prime minister is not prepared to challenge them if it means putting his coalition at risk of collapse.
Even as National Security Minister Itamar Ben-Gvir continues his provocations byascending the Temple Mount and raising security tensions, Netanyahu does nothing to stop him and makes do with a short statement about maintaining the status quo. The fiscal decisions that must be made are enormous.
According to the Bank of Israel, revenue increases and spending cuts totaling around 30 billion shekels ($8.1 billion) are required – and this is without taking into account a permanent rise in the defense budget over the coming years that Fitch estimates this will reach approximately 30 billion shekels annually. To enable this and other measures, a serious economic plan and a stable and responsible government are needed.
The current government is neither courageous nor responsible. It can only survive by kicking the can down the road and making the problems worse. The result will be bigger tax increases and deeper budget cuts later, and a financial crisis that will be difficult to get out of.
We must not be blinded by the low unemployment rate, the strength of the high-tech industry or the Bank of Israel's large foreign currency reserves. They are not guaranteed to last forever, and especially not in a government incapable of making courageous and unpopular decisions. An economic crisis is on its way.