Netanyahu Seeks Increased Defense Budget Without Specifying Funding Amid Election Tensions

Prime Minister Benjamin Netanyahu is pushing to raise Israel's defense budget and secure it for the next 13 years but has not disclosed how the increased spending will be financed. This move comes just before elections, with the Knesset already in recess. While boosting defense spending is legitimate, the critical question remains whether it will be funded through higher taxes or budget cuts, both unpopular options ahead of elections. Instead, the government appears to be opting for increased deficit spending, effectively passing the financial burden to future administrations.

This approach mirrors former US President Donald Trump's fiscal strategy, which Netanyahu has adopted since the COVID-19 pandemic. However, unlike the US, Israel faces higher borrowing costs and credit rating downgrades, with two major rating agencies issuing negative outlooks and warning of further downgrades if fiscal deterioration continues. Meanwhile, tax revenues have exceeded forecasts mainly due to one-time high-tech sector gains, but Finance Minister Bezalel Smotrich has directed these surpluses toward tax cuts rather than deficit reduction or defense funding, exacerbating the fiscal gap.

Last year, the government approved a structured defense budget increase plan (the Nagel Committee framework), but less than two years later, those figures are obsolete. The professional economic teams, including the Finance Ministry and Bank of Israel, have not been publicly involved or consulted on the new budget expansion. Bank of Israel officials confirmed they were not part of the decision-making process and have yet to finalize cost estimates. The Finance Ministry acknowledges the defense budget demands are constantly changing.

Bank of Israel has warned that every additional 10 billion shekels in spending without revenue adjustments will directly increase the national debt by the same amount. This fiscal reality clashes with Smotrich's ongoing tax cuts for the upper-middle class. The political calculus appears to be a trap for the next government, which will inherit a bloated defense budget, rising deficits, and a shrinking tax base, forcing painful cuts. Netanyahu's bloc could then blame that government for weakening Israel's defense and any future failures, making this outcome an intended political strategy rather than an unintended consequence.