Israel approves $222B budget, boosts defense spending amid Iran war
What's the story
Israel's parliament has approved a 2026 state budget of 699 billion shekels ($222 billion) with a major defense supplement. The spending plan, approved by Knesset lawmakers in a vote of 62 to 55, is aimed at funding the ongoing war with Iran. It will be financed through additional borrowing and cuts in civilian spending. The budget sets a deficit target of 4.9% of gross domestic product (GDP).
Budget breakdown
Israel defense gets 143 billion shekels
The defense sector has been allocated the largest chunk of the budget, with a whopping 143 billion shekels—about 120% more than in 2023. An additional reserve of six billion shekels has also been set aside for costs related to the Iran war or other military needs. This brings the total supplementary defense budget to at least 38 billion shekels, nearly 2% of GDP.
Financial strategy
Bank levy helps reduce Israel deficit
The increased defense budget will be funded by a larger deficit, which has been reduced from an expected 5.1% of GDP after Israeli banks agreed to pay a one-time levy of around three billion shekels into state coffers. Other funding sources include a 10 billion-shekel surplus in state revenues and a 3% flat cut in civilian government ministries.
Political maneuvering
PM Netanyahu delays bills, secures lifeline
To secure support for the budget, Prime Minister Benjamin Netanyahu delayed several bills that were straining his governing coalition. These included a controversial bill exempting ultra-Orthodox men from military service. Finance Minister Bezalel Smotrich also withdrew a reform of Israel's state-regulated milk industry aimed at reducing living costs. The approval of this budget gives Netanyahu's cabinet a lifeline as failure to approve it by March 31 would have led to an automatic collapse of the government under Israeli law.
Legislative details
Israel offers tax breaks for returnees
The budget legislation package also includes tax exemptions for returning Israeli expatriates and Jewish immigrants to tackle brain drain due to the war. It also offers tax benefits for middle-class employees and corporate tax waivers for research and development aimed at tech companies. This comprehensive package is part of Israel's strategy to manage its finances amid ongoing military conflicts.