Israel's Deficit Holds at 3.3% Amid Rising Revenues and Security Spending Concerns

Israel's government deficit remained steady at 3.3% of GDP in July 2026, with a monthly shortfall of approximately 4.8 billion shekels, similar to July 2025. Since the start of the year, the cumulative deficit has significantly narrowed to about 11.5 billion shekels, compared to 37.2 billion shekels in the same period last year, primarily due to a sharp increase in state revenues. In July alone, revenues reached around 55 billion shekels, totaling 362.1 billion shekels year-to-date, marking an 11.8% rise from the previous year. Tax revenues accounted for 53.3 billion shekels in July.

Government expenditures also increased but at a more moderate pace, totaling 59.9 billion shekels in July and 373.6 billion shekels since January, a 3.5% rise year-over-year. Defense spending surged by 12.6%, while civilian ministry expenses decreased by 1.3%. Despite the relatively low current deficit, the government aims for a 4.9% deficit target for 2026, implying a much larger gap between revenues and expenditures by year-end. International rating agencies have warned the actual deficit could exceed 5%.

A key concern is that only 53.5% of the nearly 700 billion shekel expenditure budget for 2026 was utilized by the end of July, less than the proportional share of the year elapsed. This does not yet include potential additional defense spending reportedly demanded by the Prime Minister. The Finance Ministry anticipates an acceleration in spending growth in the coming months. The critical question is whether the government will reduce the deficit target by maintaining higher revenues or cutting spending, or if postponed expenditures will simply inflate the deficit later in the year. The current figures may thus reflect timing rather than a sustainable fiscal improvement.