Ministry of Finance (Israel)

The Ministry of Finance prepares the state budget proposal, supervises implementation of the approved budget, manages state revenues, and collects direct and indirect taxes.[3][1] Its economic responsibilities also include promoting investment in Israel and from abroad and supervising the capital market and the savings and insurance industries.[3] Alongside these fiscal and financial functions, it determines public-sector wage policy and labor agreements and has responsibility for the activity of government companies.[1]

The ministry’s role extends beyond assembling expenditure requests: it examines how effectively government ministries use their budgets and approaches resource allocation from a government-wide economic perspective.[5][6] Its responsibility for preparing the national budget gives it a broad view of state resources, although its economic perspective does not make it responsible for analyzing non-economic strategic threats.[6] This distinction is especially important in the division of responsibilities between financial planning and national-security planning.[6]

Public descriptions identify the Accountant General, Chief Economist, Budgets Department, Salary and Employment Agreements Division, Israel Tax Authority, Capital Market, Insurance and Savings Authority, and Government Printer among the ministry’s principal units.[7][1] The 2010 government financial statements also listed the Government Companies Authority, State Revenues Administration, International Relations Division, Economic and Research Division, and Office for Rehabilitation of Holocaust Survivors, reflecting the organizational structure described in that historical report.[3] Together, these units span policy analysis, budget preparation, tax collection, procurement, labor agreements, financial supervision, state assets, and government-company oversight.[3][1]

The ministry also works with institutions outside its own administrative structure.[3] Its activities include contact with the Knesset and its committees over economic policy, budgeting, and economic legislation, together with ongoing relationships with economic bodies in Israel and abroad.[3] In public-sector collective bargaining, ministry representatives negotiate with the Histadrut.[8] The ministry’s work therefore includes parliamentary engagement, negotiations over employment terms, and cooperation on international economic matters, as well as the preparation and management of government finances.[3][8]

The ministry was established in 1948, with the founding of the State of Israel, and Eliezer Kaplan became its first minister.[7] Kaplan, a labor leader and engineer, had previously served as treasurer of the Jewish Agency from 1933.[9] His tenure as finance minister lasted from 1948 to 1952, after which Levi Eshkol held the office until 1963.[10] David Horowitz became the ministry’s first director-general in 1948 and remained in that position until 1952, helping address financial problems during the War of Independence.[11]

At Israel’s establishment in May 1948, the War of Independence and other urgent needs delayed the creation of a central bank.[2] A temporary Bank Notes Ordinance enabled currency issuance in partnership with the Anglo-Palestine Bank, subsequently renamed Bank Leumi.[2] In the meantime, the Ministry of Finance assumed other responsibilities normally exercised by a central bank.[2] These included monetary policy and banking supervision, giving the early ministry responsibilities that later belonged to a separate monetary institution.[12]

In March 1951, Kaplan appointed and chaired a committee to establish a state bank.[12] The committee submitted its recommendations in September 1952; in November that year, the Cabinet discussed its findings and sought assistance from a United Nations expert in defining the proposed bank’s functions and authority.[2][12] The committee’s report informed preparation of the Bank of Israel Law, work coordinated by Horowitz.[12] The Knesset passed the law on August 24, 1954, by 55 votes to none, with 14 abstentions.[2]

The law took effect on December 1, 1954, establishing the Bank of Israel, which assumed banking supervision from the ministry.[12] Horowitz subsequently became the central bank’s first governor.[11] Foreign-exchange control remained with the ministry longer, transferring to the Bank of Israel in 1978.[12] The creation of the central bank thus redistributed functions that the Ministry of Finance had exercised during the state’s initial years.[2][12]

The ministry’s subsequent economic activities included involvement in the 1962 New Economic Policy, capital-market reforms, and privatization of government companies.[7] Following passage of the Government Companies Law in 1975, the Government Companies Authority was established as an auxiliary unit of the ministry.[8] Its remit covered the supervision of state-owned companies, privatization, and structural changes, adding an institutional framework for managing the government’s corporate interests.[8]

The Budgets Department’s involvement in reforms during the mid-1980s inflation crisis has also featured in interpretations of the ministry’s history.[13] In a 2020 response essay, Yechiel Leiter discusses the department’s monitoring of government spending and its participation in implementing those reforms, emphasizing the role of ministers in the decisions involved.[13]

International economic cooperation formed another part of the ministry’s reform work.[14] At a June 2003 meeting of the U.S.–Israel Joint Economic Development Group, Director-General Ohad Marani co-chaired discussions of Israel’s economic reform plan, while Finance Minister Benjamin Netanyahu presented the recently enacted program.[14] The joint statement linked planned American loan guarantees to reforms including deficit reduction, tax-rate reductions, and privatization, with progress to be reviewed at regular meetings of the group.[14]

The Ministry of Finance prepares the state budget proposal, and the Knesset-approved budget becomes the government’s binding financial work plan.[3][15] Execution data are presented by the responsible office so spending can be followed against the approved budget and accountability strengthened.[15] The 2015–2016 budget, for example, was approved by the Knesset on November 19, 2015.[16]

Budget execution faces practical challenges, including uncertain forecasts, releases from reserves that require approval by both the Ministry of Finance and the Knesset Finance Committee, and inconsistent reporting of transfers between government offices.[15] These issues can complicate comparisons between authorized spending and actual implementation.[15]

The ministry’s analytical and accounting functions support budget decisions at different stages. Calcalist’s overview assigns economic analysis and forecasting to the Chief Economist, while the 2010 government financial statements describe the Accountant General as responsible for budget implementation, government financial statements, and government accounting.[7][3] The 2007 statements likewise treated execution data as a basis for following the Knesset-approved budget and strengthening accountability.[15]

The Accountant General’s wider administrative responsibilities were detailed in the government’s 2010 financial statements.[3] They included implementing the state budget, managing state assets and government housing and vehicles, and signing state contracts and agreements.[3] The division also promoted public-private partnerships in infrastructure, ran inter-ministerial tender committees, centralized government procurement, produced government financial statements, handled government accounting, and managed government ministries’ information-technology systems.[3] These were the functions listed in that historical report rather than a statement that every organizational arrangement remains unchanged.[3]

Debt management is another major part of the ministry’s financial administration. The 2022 prospectus reported central-government debt of NIS 1,037.1 billion at the end of 2022, including NIS 883.2 billion in domestic debt and NIS 153.9 billion in external debt; the average time to maturity was 9.3 years.[4] The prospectus also described domestic and foreign-currency issuance, hedging, and changes to the size and number of bond series as tools of borrowing and risk management.[4]

Changes in the composition of government debt illustrate one aspect of this work.[4] The CPI-linked share of Israel’s domestic tradable debt fell from 81 percent in 1995 to 38 percent in 2022, while its U.S.-dollar-linked share declined from 10.1 percent to zero.[4] These changes were attributed to ministry measures intended to increase the transferability and liquidity of government bonds.[4]

Revenue administration, taxation, financial-market supervision, and economic analysis are represented among the ministry’s functions. Public descriptions identify the Israel Tax Authority, Chief Economist, Capital Market, Insurance and Savings Authority, Budgets Department, and Accountant General among its units.[7][1] The 2010 financial statements and Globes also identify economics and research, international economic relations, State Revenue Administration, rehabilitation, the legal office, the Custodian of Absentees’ Property, and the Government Printer within the ministry’s broader structure, with the 2010 listing understood as historical.[3][1]

Historical organizational descriptions also show responsibilities connected with compensation and rehabilitation.[3] The 2010 financial statements included the Office for Rehabilitation of Holocaust Survivors among the ministry’s divisions, bureaus, and units.[3] They also described a bureau dealing with personal compensation claims by Israeli citizens eligible for health compensation from the German government under the German Compensation Law.[3]

The Government Companies Authority supervises state-owned companies, privatization, and structural changes, and leads recruitment of company board members whose appointments require committee approval.[8] A 2024 account placed about 100 commercial and noncommercial companies, government subsidiaries, and mixed government-private companies under its oversight.[8] Named examples included Israel Electric Corporation, Israel Aerospace Industries, Rafael Advanced Defense Systems, Israel Post, Mekorot, Israel Railways, and the Ashdod and Eilat Port Companies.[8] This portfolio brings the ministry’s corporate oversight into fields including electricity, defense industries, water, postal services, rail transport, and ports.[8]

Public-sector employment is another area in which the ministry combines policy responsibilities with negotiations.[8][1] It determines public-sector wage policy and labor agreements, while collective-bargaining negotiations take place between ministry representatives and the Histadrut.[8][1] Strikes remain a common and viable negotiating tactic, although their number has declined as the public sector has become smaller.[8]

Historical budget figures show the scale of the expenditure and revenue frameworks within which the ministry operated.[16] For the 2015 budget, original expenditure was reported as NIS 331 billion, approximately 29 percent of GDP, and tax income as NIS 260 billion, approximately 24 percent of GDP.[16] Other income of about 2.6 percent of GDP yielded a projected deficit of NIS 34 billion, or approximately 2.7 percent of GDP.[16] An estimate made in January 2016 put the actual deficit at 2.15 percent of GDP.[16] The 2015–2016 budget was approved by the Knesset on November 19, 2015.[16]

The ministry also participated in the formulation of targeted economic-development programs.[17] Government Resolution 922, adopted in December 2015, sought to promote economic development among minority populations during 2016–2020.[17] The Budgets Department formulated the plan with representatives of Arab society.[17] Implementation was assigned to the Ministry of Social Equality’s Authority for Economic Development of Arab Society, in coordination with relevant ministries, the Finance Ministry’s Budget Division, and local Arab authorities.[17]

Resolution 922 was initially announced with a NIS 15 billion allocation, including NIS 5.8 billion for Arab education; a later accounting described approximately NIS 10 billion for the plan excluding education.[17] An official 2021 summary recorded approximately NIS 10 billion allocated and NIS 9.6 billion distributed across infrastructure, employment and the economy, education and higher education, community, and local authorities.[17] These figures describe allocations and distribution across the program’s fields, rather than a single measure of its economic or social outcomes.[17]

Foreign-investment review provides another example of the ministry’s participation in cross-government policy.[18] On October 30, 2019, the political-security cabinet decided to establish an advisory committee to consider national-security issues in foreign-investment approval.[18] The Ministry of Finance, National Security Council, and National Economic Council had led preparatory work.[18] Senior representatives of Finance, Defense, and the National Security Council were to sit on the committee, with observers from other government bodies.[18] Its purpose was to help regulators incorporate security considerations into reviews primarily concerned with financial and economic matters.[18]

The ministry’s responsibility for preparing the national budget gives it a broad view of the resources available to the state.[6] Its work connects that view with individual ministries’ expenditure, government borrowing, tax receipts, public-sector employment costs, and the financial performance of government activity.[3][1] The budget process and the reporting of its execution consequently link government priorities to parliamentary authorization and subsequent financial accountability.[15][16]

The ministry’s oversight responsibilities extend to how effectively resources are used, not simply whether funds have been appropriated.[5] A 2005 INSS account described the Treasury as the government’s professional branch for allocating resources and examining the efficacy of their use, while distinguishing its economic and budgetary perspective from the defense establishment’s security-planning perspective.[5][6] These functions illustrate the difference between fiscal oversight and the operational planning undertaken by institutions receiving funding.[5][6]

Budget-execution reports and financial statements provide information for decisions throughout implementation and create a record against which authorized spending can be followed.[3][15] The 2022 prospectus documents the borrowing side of public finance through debt totals, maturity data, bond issuance, and measures aimed at improving bond liquidity.[4] Together, these accounting, execution, and debt records connect approved expenditure with financing and subsequent oversight.[3][4]

The ministry’s significance is also visible in policy areas that require coordination rather than budget preparation alone.[14][17] It helped formulate Resolution 922 with representatives of Arab society and participated in the coordination framework for implementation.[17] In international economic relations, its leadership took part in discussions linking American loan guarantees with Israeli economic reforms.[14] Its participation in preparations for foreign-investment screening likewise placed it at the intersection of financial regulation, investment policy, and security considerations.[18]

Recurring disputes with the defense establishment concern both the size of the defense budget and the balance between security requirements and civilian spending.[19] During the 2014–2015 debate, the Finance Ministry argued that the defense budget was “too big for the economy,” while senior defense officials maintained that it was too small for Israel’s defense needs.[19] A 2005 account described the Treasury as generally favoring expenditure on health, education, and social welfare, within a broader debate over the respective authority of elected officials and finance professionals to set national priorities.[5]

The 2006 budget figures illustrate how this dispute affected proposed reductions.[5] NIS 217.4 billion in expenditure and approximately NIS 196.7 billion in revenue produced a stated NIS 20.7 billion deficit, against an allowable NIS 17.2 billion.[5] Of the resulting NIS 3.5 billion cutback requirement, NIS 1.6 billion was initially assigned directly to defense; following defense-establishment demands and a prime ministerial ruling, direct defense cuts fell to NIS 650 million.[5]

The ministry’s wider institutional influence has also been examined in academic research.[20] One chapter argues that legal provisions give it an advantage over other government bureaus and ministers, but that use of this advantage depends partly on whether the prime minister and finance minister intervene, with their choices shaped by incentives in fragmented coalition government.[20] Analysis of the 2015–2016 budget process separately identified the Budget Division as a potential source of alternatives for government consideration, while criticizing largely incremental budgeting and a general lack of multiyear planning.[16]

Foreign-investment screening raised a different tension: security agencies emphasized foreign influence and possible damage to relations with the United States, whereas economic agencies, including the Treasury, feared that rigid oversight could discourage investors and encourage brain drain.[18] The 2019 arrangement was advisory, referrals were voluntary and at regulators’ discretion, and it was not established within a foreign-investment legislative framework.[18] Assessments of Resolution 922 raised a narrower issue of evaluation: differing funding totals and measures could not by themselves establish the program’s full results.[17]