Political Stalemate Could Cost Israel Up to $3 Billion
Translated & summarized from Calcalist by baba
Israel's political deadlock is projected to cost the economy up to 12 billion shekels ($3 billion) due to stalled government operations, delayed legislation, and a lack of an approved state budget. Ministries will operate on temporary budgets, halting new contracts and reforms. The inability to pass new tax laws and combat the black market exacerbates the financial strain, with potential impacts on GDP, state revenue, and future economic growth.
The story in 5 lines · by baba
- Israel's political deadlock may cost the economy up to 12 billion shekels ($3 billion).
- Government ministries will operate under temporary budgets, halting new contracts and reforms.
- The state will function without an approved budget starting January 1, 2027.
- Failure to pass new tax laws could result in 3-5 billion shekel revenue loss.
- Political uncertainty delays infrastructure tenders worth an estimated 4-6 billion shekels.
Israel's political deadlock following the recent elections is expected to impose a significant economic cost, with estimates suggesting a potential loss of up to 12 billion shekels (approximately $3 billion) to the economy. This figure includes an immediate impact of 6.5 billion shekels on GDP and a further loss of 0.8 to 1.8 billion shekels in state revenue due to economic slowdown and uncollected taxes. Additionally, the failure to pass new tax laws could result in a loss of 3 to 5 billion shekels.
Government ministries will operate under a cloud of uncertainty for at least two months, as the formation of a new government remains stalled. While essential services will continue, the future leadership and new policy initiatives for these ministries are in limbo. The 26th Knesset is set to convene on November 10, 2026, but without a clear majority for any bloc, it will function temporarily. A "preparatory committee" will be established, along with temporary finance and foreign affairs committees.
Opposition plans to potentially repeal certain laws enacted during the previous government's term, such as those concerning the attorney general and judicial appointments, are uncertain. The political paralysis stems from the inability to form a majority coalition, with various parties refusing to join a government led by Prime Minister Netanyahu or support a minority government with Arab party backing.
Starting January 1, 2027, the state will operate without an approved budget for an extended period. Ministries will be restricted to monthly budgets based on 2026 figures, halting new contracts and delaying tenders, except under special committee approval. Structural reforms and legislation to combat the black market will also be frozen. The Finance Ministry had prepared plans for a new 'Arrangements Law,' including measures against the black market like online VAT reporting, but these cannot proceed without a new finance minister and a functioning Knesset.
The economic repercussions include a freeze on planned expenditures totaling 10 to 15 billion shekels, affecting local authorities, grants, and government contracts. This halt in government spending will also impact the business sector, with immediate cash flow issues for suppliers and contractors. New infrastructure and development tenders worth 4 to 6 billion shekels are delayed, and the inability to advance structural reforms is estimated to reduce potential economic growth by 0.05% to 0.2% annually. The failure to enact new tax measures and combat the black market could cost the state an additional 3 to 5 billion shekels every two months.
