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JERUSALEM, Nov 15 (Reuters) - The Bank of Israel said on Wednesday that proposed amendments to the state budget were insufficient and the government needed to show more fiscal responsibility in dealing with the economic impact of the war with Hamas in Gaza.
The central bank warning came after Prime Minister Benjamin Netanyahu late on Tuesday gave initial approval to changes in the budget.
Netanyahu and his finance minister said only that the proposed war budget would be funded by increasing the deficit, channelling funds from ministries, and cutting controversial budgets agreed upon in coalition deals with ultra-Orthodox and nationalist parties. They gave no specific figures.
The amended budget will require cabinet and parliament approval.
"Alongside the need to provide a budgetary response to the needs created by the war, even in times of emergency it is very important to maintain a responsible fiscal framework," the Bank of Israel said.
It said in a statement that Finance Minister Bezalel Smotrich was proposing to increase the 2023 budget by 31 billion shekels ($8.21 billion) - with 22 billion shekels going to the defence ministry and 9 billion for civil expenses - along with a 4 billion shekel spending cut.
That 4 billion shekel cut, the central bank said, "is not large and as such its contribution to strengthening the credibility of the government's commitment to fiscal adjustment for the costs of the war is limited".
The government should cut the 2024 budget to help cover expenses this year, including the coalition agreement funds, which economists have warned will hurt growth, it said.
Those funds, which Netanyahu agreed to pay to ultra-Orthodox and far-right-wing, pro-settler parties to secure his ruling coalition, are highly contentious as much of the money will encourage ultra-Orthodox men, who are exempt from mandatory army service, to remain outside the workforce. ($1 = 3.7746 shekels) (Reporting by Ari Rabinovitch; editing by Christina Fincher, Robert Birsel)