The renewal of the war in Gaza over a month ago, after the ceasefire, and the plan to expand it with a large-scale ground operation, is incurring significant costs. IDF is already discussing the need for a substantial budget increase of approximately $2.6 billion. Finance Ministry strongly opposes such a large addition.
In recent days, the defense establishment has calculated the additional costs of extending and expanding the war, which could involve conquering about 40% of the Gaza Strip in the coming weeks. The goal is to enhance the security of communities near Gaza and prevent the resumption of rocket fire on Israel—an issue that senior government officials, including Defense Minister Israel Katz, have addressed in recent days.
Senior Finance Ministry officials were reportedly shocked by the proposed $2.6 billion addition to the defense budget. A senior official told Ynet: “It is inconceivable that, beyond the nearly $31 billion already allocated—including the use of a $2.6 billion reserve fund—another $2.6 billion could be added to an already inflated defense budget.”
Finance Ministry officials explained that if there is no choice but to further increase the defense budget, it would require implementing measures “each worse than the other and at the expense of the economic well-being of the country’s citizens.”
If an additional increase in the defense budget becomes unavoidable—should the war in Gaza continue to escalate, including the need for another large-scale reserve recruitment—one of the following steps would need to be taken:
-
Breaching the state budget (after it has already been breached three times this year in an unprecedented manner).
-
Increasing the deficit from the current 4.7%-4.9% range to approximately 5.1%-5.2%.
-
Implementing another significant cut in the budgets of all government ministries, which were already sharply reduced in 2024 and in the newly approved 2025 budget.
-
Further raising taxes, despite the original intention of the prime minister and finance minister to lower taxes in the 2026 budget, which will be an election year.
At this time, it is almost certain that any additional tax hikes will be rejected outright. The preferred solution, if an additional increase in the defense budget is unavoidable, would be another significant reduction in ministry budgets along with a slight increase in the state budget deficit by 0.1%-0.2%.
It should be noted that credit rating companies, as well as economists from banks and investment houses, have already assessed that the 2025 budget deficit will exceed 5%. Such a scenario could, in an extreme case, lead to further downgrades of Israel’s credit rating, although rating agencies have recently indicated the possibility of upgrading the current negative outlook to stable in the future.
发表回复