Israel Faces Massive Budget Deficit Due to Defense Spending Hike

Israel is heading towards a significant budget deficit, regardless of the next government's composition, primarily due to a substantial increase in defense spending approved by Prime Minister Benjamin Netanyahu. This commitment, potentially reaching up to 400 billion shekels over the next decade, was made without securing sustainable funding sources.

Tax Authority Director Shai Aharonovich has warned of a "very difficult year in 2027" requiring "urgent and special measures," indicating that the financial burden of these commitments will fall on the public after the upcoming elections. Proposed austerity measures include canceling VAT exemptions for Eilat, fruits and vegetables, and study funds, as well as potentially raising VAT and income taxes, and increasing national insurance payments.

The article questions the necessity of these tax hikes, pointing to approximately 5 billion shekels allocated in the 2025 budget for coalition funds, a significant portion of which is directed towards ultra-Orthodox institutions. This suggests that tax increases are a policy choice rather than an unavoidable outcome.

Furthermore, the National Insurance Institute faces a deep actuarial deficit, with the State Comptroller warning that its funds could be depleted. Despite this, the government has not developed a multi-year plan to address the issue, and relevant committees have failed to discuss the institute's long-term stability.

Meanwhile, national infrastructure projects like the Gush Dan metro and social systems such as education, healthcare, and welfare are reportedly underfunded and deteriorating, with their much-needed investments deferred to the next government, exacerbating the existing budget shortfall.