In Jerusalem’s bustling markets and quiet government offices, there’s a cautious sigh of relief. Israel’s fiscal deficit, a weight on the nation’s shoulders, has narrowed for the seventh straight month, dropping to 5.1% of GDP by April, according to the Finance Ministry. For families juggling rising costs and businesses rebuilding after years of strain, this news feels like a small but welcome step toward stability in a country no stranger to challenges.
The Finance Ministry’s latest report, released Monday, paints a picture of steady progress. The 12-month deficit fell from 5.2% in March to 5.1% in April, driven by a combination of tax hikes and declining war costs. In the first four months of 2025, the deficit totaled 7.2 billion shekels ($2.02 billion), a sharp improvement from the 38.1 billion shekel gap in early 2024. January’s value-added tax (VAT) increase from 17% to 18% boosted state income by 26% year-on-year, while reduced military spending after a 16-month multifront conflict eased the burden. Still, April saw a monthly deficit of 11.1 billion shekels, showing the road ahead isn’t smooth.
Finance Minister Bezalel Smotrich hailed the trend as a sign of resilience. “Our economy is strong, and these numbers prove we’re on the right track,” he told reporters, his voice carrying a mix of pride and urgency. But behind the figures are real people—shopkeepers paying higher VAT, parents eyeing school fees, and workers hoping for job security. The ministry’s efforts to balance the books come after a tough 2024, when war spending pushed the deficit to 6.9% of GDP, the highest since the COVID crisis.
Israel’s economic story is tangled with its turbulent reality. The 2023 Hamas attack and ongoing regional tensions drained resources, with 100 billion shekels ($28 billion) spent on military operations last year. Tax hikes, including VAT and income tax adjustments, were rolled out in January to plug the gap, sparking grumbles from consumers already stretched thin. The Bank of Israel, wary of market jitters, urged lawmakers to stick to the 2025 budget, which targets a 4.7% deficit and a debt-to-GDP ratio of 69%. That budget, narrowly approved in an initial vote, still needs two more to become law.
Reactions are a mixed bag. In Tel Aviv’s cafes, some locals feel hopeful. “Lower deficits mean maybe we’ll see more jobs or better schools,” said Rina Cohen, a teacher quoted by The Times of Israel. Others, like small business owner Avi Levy, aren’t convinced: “Taxes are up, and I’m still paying more for everything.” On social media, posts echoed the divide, with some praising the government’s fiscal discipline and others worrying about rising costs. Analysts, like those at Reuters, note the progress but warn the deficit still exceeds the 2024 target of 4.7%.
Globally, the news bolsters Israel’s image as a recovering economy. In February, the country sold $5 billion in bonds to manage its deficit, a move seen as a vote of confidence by investors. Yet, credit rating downgrades last year linger, and the U.S.’s looming 17% tariffs on Israeli goods threaten trade, which saw a $7.4 billion deficit with the U.S. in 2024. Economy Minister Nir Barkat, pushing for a trade deal, remains optimistic, but time is tight before the tariff pause ends in July.
The implications touch every corner of Israel. A narrower deficit could free up funds for hospitals, roads, or tech startups, a sector that’s long fueled growth. But high taxes and global trade risks could squeeze families and businesses, especially if war costs spike again. The Finance Ministry’s data suggests a delicate balance—progress, yes, but not without pain.
Looking ahead, all eyes are on the 2025 budget’s final votes. The Bank of Israel warns that any changes risking higher deficits could shake markets. Smotrich’s team aims to hit the 4.7% target, but a senior official told The Straits Times the deficit might near 5%, still a win compared to last year. For now, Israel’s people—shoppers, workers, dreamers—carry on, hoping these numbers translate into a brighter, steadier future.
