Israel’s 2025 Budget Gap Nears 100 Billion Shekels as War Costs and Debt Service Rise

Israel’s Finance Ministry said the government spent about 650 billion shekels in 2025 while collecting roughly 552 billion shekels in taxes and other revenue, leaving a gap of nearly 100 billion shekels that had to be financed through borrowing. The report, published Wednesday, shows the state again ending the year deeper in debt, with the war remaining the main driver of spending growth.

Since October 7, 2023, through the end of 2025, the state spent 231 billion shekels on fighting in multiple arenas. Of that total, 163 billion shekels went to direct military costs and 69 billion to civilian expenses, including compensation for people in the home front. Tax revenue in 2025 was 30 billion shekels above the Finance Ministry’s earlier forecast, but it still was not enough to close the deficit.

Debt service is becoming a larger burden on the public budget. Interest payments rose 18% in a year to almost 50 billion shekels, money that goes to lenders instead of hospitals, classrooms, or roads. Economists warn that if the government does not rein in debt growth, pressure will build for tax hikes and cuts in public services.

The ministry said the official deficit for 2025 was 4.7% of GDP, better than its 4.9% target and well below the 6.8% recorded in 2024, but that improvement came entirely from stronger tax collection rather than spending cuts. The ministry’s original deficit target for the year had been 4%, later raised to 4.3% before final approval. 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, or about 110 billion shekels.