Israeli Cabinet unanimously approves 2021-22 state budget

Approval was crucial to coalition government's promise to invest big in infrastructure

Israeli Prime Minister Naftali Bennett attends a Cabinet meeting at the prime minister's office in Jerusalem.

Israel's Cabinet unanimously approved a state budget for 2021-2022 on Monday, more than three years after the government last ratified a fiscal spending package, the Finance Ministry and the prime minister's office said.

After a marathon session running from Sunday morning through the night, Cabinet ministers voted on an expected spending package of 605.9 billion shekels ($187.68 billion) in 2021 and 560bn shekels in 2022.

That includes extra funds to fight the coronavirus pandemic and debt servicing.

The vote took place after the health minister's demands for more funds were met.

The budget next heads to Parliament, which is expected to take its initial vote in early September, with final approval for the 14-month budget set for early November.

The budget deficit is projected at 6.8 per cent of gross domestic product in 2021 and 3.9 per cent in 2022, after hitting 11.6 per cent in 2020.

“After long discussions, we passed a responsible budget,” said Finance Minister Avigdor Lieberman.

He said the state was investing huge amounts in infrastructure, transport and real estate and passed key reforms making it easier to do business by lowering barriers and cutting bureaucracy.

Two years of political stalemate and four elections have left Israel still using a pro-rata version of the 2019 state budget passed in March 2018.

A new government led by Prime Minister Naftali Bennett, a former software entrepreneur, took office in mid-June and unseated Benjamin Netanyahu after 12 years in office.

“After three years of stagnation Israel is back to work,” Mr Bennett said after the vote. “Israel in 2021 is sowing the future for our children and grandchildren in 2051.”

Investors are satisfied with the agreed budget, with the shekel stronger against the dollar, share indices 1 per cent higher and bond prices narrowly mixed.

Similarly, Israel's central bank said the budget approval was positive for economic growth.

"The lack of an approved budget in recent years has hit the economy," said Bank of Israel Governor Amir Yaron.

"Approval of the budget under the proposed framework will buy the economy stability, reduce uncertainty regarding the government's economic policy, and thus accelerate the economy's recovery from the corona crisis and increase employment."

In an economic plan accompanying the budget, ministers approved measures that include freeing up imports, cutting the cost of living and increasing the retirement age for women from 62 to 65.

It will also encourage employment, invest in transport, housing, technology and energy infrastructure, and reform the long-protected domestic farm sector.

Citing a doubling of fresh produce costs the past decade, Mr Lieberman seeks more imports, while the state will invest to make farmers, who oppose the plan, more innovative and efficient.