Netanyahu Pushes Massive 400 Billion Shekel Defense Budget Ahead of Elections, Raising Tax Concerns

Prime Minister Benjamin Netanyahu has ordered the urgent advancement of a state budget that includes a 400 billion shekel commitment to Israel's defense system over 13 years. This decision, revealed by Globes, came during a tense meeting at the Prime Minister's office on a recent Thursday, just two months before the upcoming elections. Netanyahu described the Israel Defense Forces as "skin and bones" in some areas despite the budget nearly tripling since before October 7, emphasizing the need for increased military procurement.

Finance Minister Bezalel Smotrich opposed the move, having previously blocked a similar 350 billion shekel defense budget plan before the elections, citing concerns about timing and the ongoing war. However, Netanyahu instructed Government Secretary Yossi Fox to expedite the budget opening, citing urgent procurement needs that ballooned from 2 billion to 20 billion shekels during discussions. The budget includes 50 billion shekels from military efficiencies and another 50 billion from external sources, such as defense industry bonds, though no formal plan has been presented. Specific allocations include 7 billion shekels for northern Israel's protection and 12.5 billion for the Foreign Ministry.

Security officials express concern over the timing, fearing potential election instability and military readiness issues, as current ammunition production lines are expected to run out by late 2024. Despite urgent needs being met through internal budget reallocations and emergency funds, sources suggest Netanyahu aims to claim credit for the budget increase in his election campaign. Opening the budget now will likely require aggressive tax hikes and spending cuts, which will mostly impact future years due to the election period and legislative constraints.

The increased defense spending is expected to widen Israel's budget deficit beyond the initially forecasted 3.4% of GDP for next year, potentially affecting the country's economic outlook and credit ratings. The Bank of Israel, led by Governor Amir Yaron, distanced itself from the decision, warning that debt-to-GDP ratios could rise significantly without new U.S. aid agreements. The International Monetary Fund has also recommended reducing the deficit to 2.5% over the next three years to stabilize debt levels.

Legal experts highlight potential challenges to approving such a large budget expansion during an election period, emphasizing the government's obligation to exercise restraint and avoid long-term decisions that could constrain future administrations. The government legal advisor is expected to review the plan's legality amid ongoing debates. Meanwhile, a 2024 public committee led by Yaakov Nagel recommended a baseline defense budget of just over 100 billion shekels annually, with the additional buildup funds to start gradually from 2027, contrasting with Netanyahu's accelerated timeline.

Overall, Netanyahu's push to open the defense budget now signals a strategic political move ahead of elections, with significant economic and legal implications for Israel's fiscal policy and military preparedness.