Israel's 2021/22 budget set for parliament battle after cabinet approval

© Reuters. FILE PHOTO: Israeli Prime Minister Naftali Bennett attends the weekly cabinet meeting at the prime minister's office in Jerusalem August 1, 2021. Abir Sultan/Pool via REUTERS

By Steven Scheer

JERUSALEM (Reuters) -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, but it faces a tough battle in a fractured parliament.

Lawmakers are expected to take an initial vote in early September, with final approval for the 14-month budget set by early November.

However, Prime Minister Naftali Bennett, a former software entrepreneur who took over a new government in mid-June after unseating Benjamin Netanyahu after 12 years in office, commands a razor-thin majority in parliament.

He and his finance minister Avigdor Lieberman have already come under pressure from ministers and lawmakers upset at some planned reforms, while others seek higher funding.

For the moment, though, investors are satisfied, with the shekel stronger against the dollar, share indices 1% 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."

Two years of political stalemate and four elections have left Israel still using a pro-rated version of the 2019 state budget passed in March 2018. Ironically, it was a refusal by Netanyahu last year to agree to a two-year budget for 2020 and 2021 that helped bring down his coalition.

After a marathon session running from Sunday morning through the night, cabinet ministers voted on an expected spending package of 605.9 billion shekels ($188 billion) in 2021 and 560 billion shekels in 2022 -- including extra funds to fight the coronavirus pandemic and debt servicing.

The budget vote came after the health minister's demands for more funds were met.

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

"After long discussions, we passed a responsible budget," said 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.

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

In an economic plan accompanying the budget, ministers approved measures from freeing up imports to cutting the cost of living and boosting the age of women's retirement to 65 from 62.

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

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

($1 = 3.2301 shekels)