Israeli Finance Ministry to Add 15 Billion Shekels to Defense Budget Amid Ongoing Negotiations

Negotiations over Israel's defense budget are ongoing, with the National Security Council aiming to reach agreements in the coming days. The emerging framework, similar to recent reports, involves the Finance Ministry allocating an additional 12 billion shekels from a reserved budget for war expenses, plus another 3 billion shekels through budget transfers. Despite this 15 billion shekel increase, a remaining gap of about 25 billion shekels persists. Throughout the year, until the next budget approval, parties will seek additional funding sources as needed based on the IDF's plans and actual budget execution. Optimism exists that positive surprises in tax revenue collection could free up more funds for defense.

The Finance Ministry is expected to resist exceeding budget limits or increasing the deficit target. Consequently, aside from the immediate budget increase agreement, further discussions have been postponed until year-end. Agreements will likely allow the defense establishment to commit now to future procurement expenses within a 350 billion shekel decade-long acquisition plan, though only a few billion shekels will be committed in the near years.

Following the state budget approval in late March amid the ongoing conflict with Iran, the defense budget was raised from 111 billion to 144 billion shekels. However, the security cabinet has assigned additional tasks to the IDF, including maintaining security zones in Syria, Lebanon, and Gaza, alongside continued preparations against Iranian threats. These require extra resources for reserves, procurement, and equipment, prompting calls for further budget increases. Initially, the Finance Ministry opposed any additional funds, criticizing defense resource management and reserve day usage.

The Bank of Israel's March forecast, incorporating the budget relaxation, projects a deficit of 5.3% of GDP by year-end, above the 4.9% target set in the state budget. The Finance Ministry fears that fully meeting defense demands could breach deficit targets, potentially triggering broad government spending cuts. Defense spending has surged significantly since the war began; pre-October 7, the defense budget was about 60 billion shekels, now potentially tripling if all demands are met. Defense spending as a GDP percentage rose from roughly 4.5%-5% pre-war to about 8% at its peak. Total war-related expenditures since October 7 have reached approximately 405 billion shekels.

Prime Minister Benjamin Netanyahu's approved procurement plan includes 350 billion shekels over ten years, partly funded through military efficiencies and defense company issuances. The IDF can commit to future spending of a few billion shekels in the coming years under this plan.