The Finance Ministry’s 2025 budget execution report, published Wednesday, shows the government spent about NIS 650 billion and took in roughly NIS 552 billion from taxes and other sources. That leaves a gap of almost NIS 100 billion, meaning the state had to borrow heavily to finance itself, deepening Israel’s debt burden.
The main driver of the swelling spending was the war. Since October 7, 2023, and through the end of 2025, the state spent NIS 231 billion on fighting in multiple arenas. Of that, NIS 163 billion went to direct military expenses and NIS 69 billion to civilian costs, including compensation for people in the home front.
Tax revenue in 2025 was unexpectedly strong, coming in NIS 30 billion above the Finance Ministry’s forecast, but that was still not enough to close the deficit. Total tax collection reached about NIS 520 billion, up 14% from 2024 and about 6% above the ministry’s earlier projections, largely because of higher corporate taxes and dividend taxation, which reflect strong profits in the high-tech sector.
The cost of servicing the debt is also climbing. Interest payments rose 18% in one year to nearly NIS 50 billion, money that goes to debt service instead of hospitals, schools or roads. Economists warn that if debt keeps growing, pressure will increase to raise taxes and cut public services. Israel’s debt-to-GDP ratio has climbed to 68.4%, despite Bank of Israel advice to reduce it.
The Finance Ministry says the 2025 deficit ended at 4.7% of GDP, slightly better than its 4.9% target, and much improved from 6.8% in 2024. But that improvement came from stronger tax receipts, not lower spending. The Central Bureau of Statistics calculates the deficit differently, including bodies such as the National Insurance Institute and local authorities, and puts it at 5.2% of GDP, about NIS 110 billion.
