Israel's outgoing finance minister says incoming government will harm economy

Israel's outgoing finance minister warned on Tuesday that the incoming government would be "very socialist" due to a coalition deal involving an ultra-Orthodox Jewish party and this could cause a collapse of the economy.

Nationalist Avigdor Lieberman served as finance minister over the past 18 months but will move to the opposition once Prime Minister-designate Benjamin Netanyahu retakes the top office. His new government is due to be sworn in on Thursday.

The right-wing Netanyahu, once an ally of Lieberman but now a political rival, has so far signed one coalition deal - with the ultra-Orthodox United Torah Judaism (UTJ) party - which Lieberman said runs counter to a free and open economy.

"It's a very socialist approach," Lieberman told reporters. "It's just take money, take money, take money - instead of creating money.

"The agreements taking shape will (eventually) spell the collapse of the Israeli economy," he said, citing the prospect of increased subsidies for the ultra-Orthodox, who generally do not work or do military service, and a cancellation of reforms that opened Israel to a wider variety of agricultural imports.

A planned rise in funding for schools that do not teach core subjects such as English and math would undermine "the ability in future to enter the labour force", Lieberman added.

In October, an ultra-Orthodox leader said studying math and English had no impact on the economy.

Moshe Gafni, UTJ chief and head of parliament's finance committee, said on Tuesday there was a media campaign against his party that was "a complete lie".

Lieberman said treasury calculations of the coalition pact with UTJ alone would cost 20 billion shekels ($5.7 billion). "I hope we don't get to the point where Israel's credit rating is lowered, but (rating agencies) follow every move here."

He touted his conservative fiscal policies that yielded a rare annual budget surplus of some 0.4% of gross domestic product in 2022, compared to the 4.5% deficit in 2021.

Bezalel Smotrich, head of the far-right Religious Zionism party which performed strongly in the Nov. 1 election, is slated to become finance minister in the new government and he backs a markedly higher budget for religious study.

Lieberman urged Smotrich to stick to free market policies.

Israel's economy grew around 6% this year and is projected at 3% growth in 2023. Lieberman said that while inflation stands at a 14-year high of 5.3%, it was low compared to most Western countries.

Israel's main labour union is seeking new wage deals totalling over 15 billion shekels ($4.3 billion) and the central bank has warned that if approved, they could stoke inflation.