Israeli Government's Legislative Blitz Costs Tens of Billions and Risks Long-Term Economic Harm

As Israel's 25th Knesset prepares to dissolve on July 17, the government and coalition are rushing to pass last-minute legislation while simultaneously approving rapid budget transfers for political purposes. The direct fiscal cost of these measures amounts to tens of billions of shekels, but experts warn the broader economic and democratic consequences could be far greater.

Key laws passed include the Basic Law on Torah Study, which may expand economic benefits to ultra-Orthodox men exempt from military service, potentially slowing their integration into the workforce and increasing the burden on others. The Finance Ministry estimates that each month of reserve military service lost costs the economy about 50 million shekels, with cumulative losses reaching 170 billion shekels between 2023 and 2026. Additionally, direct state payments to reservists since the war began are expected to total 115 billion shekels this year.

The coalition also repealed the kosher certification reform initiated by the previous government, restoring the Chief Rabbinate's monopoly and adding an estimated 750 million shekels annually in costs to consumers. Other laws include freezing enforcement against draft evaders among ultra-Orthodox youth until November 30 and extending mandatory military service to 32 months.

Institutional weakening is another concern, with the Knesset approving legislation that diminishes the role of the Attorney General and expands gender segregation in academia, potentially harming Israel's medical training and higher education budgets. A media reform law reducing content investment obligations for providers was also passed, raising fears of increased market concentration.

At the same time, significant consumer-friendly reforms, such as metropolitan transportation improvements and a business credit data repository, were shelved due to coalition pressures, particularly from ultra-Orthodox parties. Several financial reforms aimed at protecting small investors and expanding open banking were also delayed.

Budget reallocations include nearly 500 million shekels diverted from Arab community development to security, tens of millions to ultra-Orthodox education and social development, and hundreds of millions to local authorities and settlement security in the West Bank. Some transfers occurred before official committee approval, raising legal concerns.

The Israeli Democracy Institute warns that this legislative rush undermines the rule of law, perpetuates inequality, and risks downgrades from credit rating agencies like Moody's, which would increase borrowing costs and reduce funds for public services. The weakening of judicial independence combined with rising security burdens and exemptions from military service poses a significant long-term threat to Israel's economic growth and investment climate.