Israel’s 2025 deficit came in at 98.6 billion shekels, or 4.7% of GDP, down from 6.8% in 2024 and better than the Finance Ministry had expected. The improvement was driven by a 13.8% rise in tax revenue, well above nominal GDP growth of about 5.2%, and by lower defense spending, which together cut the deficit by roughly 2 percentage points of GDP.
The budget, however, was heavily reshaped during the year. The original March 2025 budget totaled 619 billion shekels, then rose by another 30 billion in September after the war pushed up defense needs. By the end of December, actual spending reached 682 billion shekels. Defense outlays climbed to 165 billion shekels, or 7.8% of GDP, up from about 4.5% before the war, and absorbed about a quarter of the entire state budget.
A major share of spending also went to debt service. Israel’s debt-to-GDP ratio rose from 60% before October 7 to about 70%, pushing government interest costs to 49.2 billion shekels, or 2.3% of GDP, the highest level since 2017. Interest spending exceeded the budgets of the Transport Ministry, 41 billion shekels, Public Security, 28.7 billion, and pensions and compensation, 23.6 billion.
Civilian spending hit a low point in budget share terms, at 65.5% of the budget, the weakest since 2007, while defense spending reached its highest share in more than 25 years at 26.6%. The combined budgets for education, health, welfare, infrastructure and the National Insurance Institute totaled 435 billion shekels, or 19.3% of GDP. The state’s 2025 execution report, published by State Comptroller Michal Abadi-Boiangiu, also put war costs at 231 billion shekels since October 7, 2023, far below Bank of Israel’s 405 billion shekels estimate because it counts only extra spending, not lost revenue. The report said the main civilian war costs were the compensation fund and population evacuation. It also showed uneven ministry execution, with overall government spending at about 96%, but much lower rates in several ministries, including Energy at 70%, the Prime Minister’s Office at 76%, Agriculture at 80%, Settlement at 64%, Foreign Affairs at 86%, Finance at 80%, and the Capital Market Authority at 66%.
