Israel's budget row smoulders as finance minister Smotrich heads to US

By Steven Scheer

JERUSALEM (Reuters) - Israeli Finance Minister Bezalel Smotrich left for high-level talks in the U.S. on Tuesday, leaving behind a growing coalition crisis with ultra-Orthodox parties who say they have been denied promised 2025 budget allocations.

The parties, which could bring Prime Minister Benjamin Netanyahu's government down if they left the coalition, say the funds were agreed on with Smotrich but the full amount was not added to the main, long-delayed 2025 budget.

Smotrich could not immediately be reached for comment.

The cabinet was slated later on Tuesday to discuss part of the 2025 budget, which has passed an initial parliamentary vote but needs final approval by a March 31 deadline to avoid the risk of early elections.

The budget, containing a mix of spending cuts and tax hikes to fund wartime outlays, only narrowly passed its first vote in December due to a rebellion from one of Prime Minister Benjamin Netanyahu's far-right partners - Israeli Security Minister Itamar Ben-Gvir and his six-seat ultranationalist Otzma Yehudit party, which had voted against the budget.

Last year, all three international credit rating agencies cut Israel's rating due to massive war expenses incurred since the Oct. 7, 2023 attack on Israel by Palestinian militant group Hamas that pushed the budget deficit to some 7% of GDP in 2024.

Jewish ultra-Orthodox, or Haredi, parties, which represent communities heavily dependent on government support, have demanded more than 1 billion shekels ($277 million) for their seminaries and other favoured areas.

Housing Minister Yitzhak Goldknopf, chairman of the ultra-Orthodox United Torah Judaism party, said on Tuesday none of the budgets for the Haredi community have been settled as agreed.

"I call on my fellow party leaders to take note of this and ensure that the Haredi community is not left behind," he said. "We must insist that these budgets be arranged without delay and in accordance with the coalition agreements we signed."

In an X post with an in-flight photo, Smotrich said he would have talks with U.S. Treasury Secretary Scott Bessent in Washington to strengthen economic cooperation between Israel and the U.S., promote joint economic initiatives and deepen the strategic alliance between the countries.

"In my meetings, I will emphasise Israel's determined stance in the fight against terrorism and the need for clear American backing for the continuation of our security activities in the war," said Smotrich, who was to meet Bessent on Wednesday.

In response, Goldknopf said he expected Smotrich to "prevent the economic crisis that is plaguing the Haredi education system and the yeshiva world".

He added: "It is important that the partners with whom you are promoting initiatives in the U.S. know that you are a person who respects agreements."

Until a budget is approved in 2025, the 2024 budget will be divided into 12 parts with 1/12 allocated each month.

(Reporting by Steven Scheer; editing by Mark Heinrich)