Treasury Official Warns Israel Faces a Dangerous Postwar Debt Trap

Tamara Levi Banna, a senior official in Israel’s Budget Division at the Finance Ministry, says the trauma of October 7 has made it almost impossible for politicians to say no to defense spending. In an interview, she argued that this “trauma economy” is pushing the next government toward a dangerous path of rising debt, which would eventually force Israelis to pay through higher taxes or cuts to public services.

Levi Banna said the defense establishment no longer seems to accept limits. Israel’s defense budget has jumped from 63 billion shekels in 2022 to 144 billion this year, and the security establishment is now asking for another 40 billion shekels, about a quarter of the state budget. She said the ministry’s job is to keep debt under control, noting that Israel moved from 60% debt to GDP to 70% after October 7 by raising roughly 10% of GDP in emergency funding. If debt climbed to 80%, she warned, the country would face a much harder recovery.

She rejected the idea that growth alone will solve the problem. “Mazel is not a plan of action,” she said, adding that sustainable growth requires deep reforms in education, removal of bureaucratic and regulatory barriers, and stricter welfare rules tied to real work ability. She also said the state must tackle public finance gaps, tax breaks and exemptions worth tens of billions of shekels, and reforms in digitization and public service.

On the broader economy, Levi Banna said investors still trust Israel because they see strong institutions and a “phenomenal” high-tech sector, but she cautioned that markets can reverse quickly if confidence fades. She pointed to Greece and former British prime minister Liz Truss as examples of how fast debt concerns can trigger crisis. The Finance Ministry also says it is looking at ways to help exporters, especially high-tech firms, as the shekel has strengthened about 20% against the dollar in the past year. The Defense Ministry responded that a multi-front war costs money, accused the Finance Ministry of underfunding the army, and said Levi Banna is not responsible for defense budgeting.