Israel Eyes Additional $3.8 Billion for Defense Amid War Spending

Israel's Knesset Finance Committee is set to convene this week to approve an additional NIS 14.7 billion (approximately $3.8 billion) for the defense establishment, covering ongoing operational expenses and costs associated with tens of thousands of reservist soldiers. Of this amount, NIS 11.5 billion was previously approved by the Knesset, with over NIS 3 billion added recently. This allocation comes as the defense budget is already one of the largest in the nation's history, with the Ministry of Defense's budget standing at approximately NIS 145 billion after a NIS 30 billion increase for 2026.

The escalating war costs are a significant factor, with estimates suggesting three years of conflict have already cost NIS 230 billion, or about NIS 79,000 per Israeli family. The current proposed additions could further increase this figure, as the government and defense establishment are discussing a potential additional NIS 25 billion. A plan presented in the summer included an immediate NIS 12 billion transfer, followed by NIS 3 billion by year-end, with a review for the larger sum based on security developments and available funds.

The source of these additional funds remains a key question. Options include utilizing existing budget reserves, cutting other government ministries' budgets, increasing tax revenues, or expanding the deficit and national debt. Bank of Israel scenarios suggest that an extra NIS 25 billion could push the defense budget to NIS 183 billion, potentially raising the deficit to 5.5% of GDP and adding 0.3 percentage points to inflation in the coming year.

Despite the substantial defense spending, Israel's fiscal situation is better than initially anticipated earlier in the year. Stronger-than-expected tax collections have led to a cumulative deficit of about 3.3% of GDP as of July, below the 4.9% target. This provides some fiscal room, though absorbing the full NIS 25 billion increase would still be challenging.

In addition to defense funding, the Finance Committee will also discuss other transfers, including NIS 72 million for the National Security Ministry, NIS 164 million for National Insurance for evacuees' benefits, funds for bolstering northern defenses, and NIS 46 million for the Jerusalem and Tradition Ministry. A significant NIS 800 million transfer to the Finance Ministry is also on the agenda, with NIS 630 million earmarked for the compensation fund, which covers damages from the security situation.