Netanyahu Pushes Costly Defense Budget Expansion Amid Election Campaign

Israeli Prime Minister Benjamin Netanyahu has instructed a significant budget overrun during the election period, focusing on a massive defense spending plan. Despite the urgent security needs following the October 7 war outbreak and related failures, the budget expansion appears closely tied to Netanyahu's election campaign. He highlighted in a recent post that Israel is advancing towards defense self-sufficiency with an investment of 350 billion shekels over the next decade. In a podcast interview, Netanyahu emphasized the goal of developing an indigenous stealth drone within ten years to reduce reliance on foreign military platforms, allocating 400 billion shekels in additional defense funding for this purpose.

Last Thursday, Netanyahu announced his intention to formalize this plan for the coming years by initiating a budget overrun. The official reason given was an urgent military procurement increase from 2 billion to 20 billion shekels within weeks. However, the defense establishment had already committed to spending 130 billion shekels from the expanded 400 billion shekel plan, including 40 billion for aircraft purchases. This suggests that even without the budget overrun, urgent needs had been addressed, raising questions about the necessity of such a large expenditure during an election period.

The decision comes amid soaring war-related costs. The military budget has nearly tripled from 60 billion shekels before October 7 to 158 billion shekels this year, excluding procurement costs. The Bank of Israel estimates the war's total cost at 405 billion shekels, roughly matching the additional spending Netanyahu seeks.

International credit rating agency Moody's recently maintained Israel's Baa1 rating with a stable outlook, highlighting geopolitical risks and Israel's economic resilience. Moody's gave Israel high marks for economic strength and institutional quality but noted fiscal resilience as weaker due to rising deficits and defense spending. The agency expects defense costs to be around 6% of GDP but acknowledges current and planned expenditures are higher. To avoid credit rating downgrades and market distrust, the next government will likely need to impose heavy taxes to fund the expanded defense procurement, especially since election-period budget overruns typically lack offsetting cuts.