Bank of Israel Governor Urges Fiscal Reform

The next Israeli government will have to halt the growth of public debt, curb defense spending and invest more in education, infrastructure and other areas that support economic growth. Amir Yaron, governor of the Bank of Israel, made the remarks at a conference hosted by the Calcalist newspaper.

Israel is set to hold parliamentary elections on 27 October, with polls suggesting that Prime Minister Benjamin Netanyahu's current coalition may lose its majority.

Yaron noted that defense spending amounts to approximately 8% of gross domestic product, double the level prior to the Hamas attack on 7 October 2023. At the same time, the public debt-to-GDP ratio has risen from about 60% to 70%.

The governor also spoke in favor of raising taxes starting in 2027 to keep the debt under control. Maharan Frozenfar, director of the Budget Department at the Ministry of Finance, disagrees and argues that higher economic growth could reduce the debt instead.

Yaron added that if Israel does not return to war and inflation remains stable, interest rates could continue to fall. He warned, however, of persistent price pressures, particularly regarding wages and rent.

(Reuters, bak)