Israel Faces Tens of Billions Shekel Gap in Defense Budget Dispute Between Finance and Defense Ministries

The ongoing dispute between Israel's Ministry of Defense and Ministry of Finance over the defense budget remains unresolved, with a gap of tens of billions of shekels. While the state budget allocates 144 billion shekels for defense, the Defense Ministry demands between 183 and 188 billion shekels. Within the approved budget, about 12 billion shekels in security and civilian reserves have been earmarked for war expenses, which the Finance Ministry agrees to release to the Defense Ministry. However, significant differences persist, and no agreement has been reached.

The state budget was approved at the end of March amid heightened tensions with Iran during Operation "Roaring Lion," raising the defense budget from 111 billion shekels agreed upon in November to 144 billion shekels. The Defense Ministry argues that the cabinet has assigned additional tasks to the military, including maintaining security zones in Syria, Lebanon, and Gaza, as well as ongoing preparations against threats from Iran, requiring more resources for reserves and procurement. The Finance Ministry initially opposed any budget increase, criticizing the Defense Ministry's resource management, including reserve duty days.

Recent discussions have been postponed due to lack of consensus. The only agreement so far is the release of 7 billion shekels from the security reserve and 5 billion shekels from the civilian reserve to support defense spending. Despite this, the budget gap remains in the tens of billions. The Bank of Israel's March forecast, accounting for these funds, projects a deficit of 5.3% of GDP by year-end, exceeding the state's target of 4.9%. The Finance Ministry fears breaching the deficit target if the Defense Ministry's demands are met and may seek broad government spending cuts to maintain fiscal discipline.

Defense expenditures have surged significantly since the war began. Before the conflict, the defense budget was about 60 billion shekels; if the Defense Ministry's demands are met, it would nearly triple. Defense spending as a percentage of GDP rose from 4.5-5% before the war to about 8% at its peak. According to the Bank of Israel, total war-related expenses since October 7 have reached 405 billion shekels.