Israel Plans Tens of Billions Shekels Increase to 2026 Defense Budget Amid Treasury Dispute

After prolonged disputes between Israel's Ministry of Finance and Ministry of Defense, it has been decided to increase the defense budget for 2026 by tens of billions of shekels. This budget expansion will likely require raising overall government spending, necessitating a new budget law to be passed through three Knesset readings. Prime Minister Benjamin Netanyahu also intends to formalize additional defense budget increases for 2027 and 2028 via government decisions in the coming weeks.

The exact amount of the increase remains unclear but is expected to be substantial. Tensions between the Finance Ministry and Defense Ministry intensified after the October 7 attacks. At the end of 2024, the Negel Committee recommended adding about 130 billion shekels over a decade. However, by late 2025, the Defense Ministry proposed a much larger increase, culminating in an agreement for roughly 350 billion shekels over ten years, with 100 million shekels expected from efficiencies and other revenues. The 2026 budget dispute centers on about 40 billion shekels. Although the budget was initially closed as the Finance Ministry wished, the Defense Ministry pushed back, and now the Finance Ministry appears poised to reopen the budget. If this happens, it will mark the fourth consecutive year Israel’s state budget is reopened, undermining confidence in the government's fiscal discipline.

Finance Minister Bezalel Smotrich has stated that any increase should be the minimum possible and insists it must not increase the deficit, preferring to fund the rise from unexpected tax revenues. Smotrich’s position contrasts with Netanyahu’s, who faces less electoral risk from a higher deficit. Regarding future years, Israel’s three-year budget framework (the "numerator") requires government approval for any spending commitments exceeding legal limits. The latest numerator from June shows that 2027-28 commitments are 30 billion shekels below the legal deficit ceiling, but total spending is near the maximum allowed. Thus, the government will need to approve funding sources for the 2027-28 defense budget increases. The June document estimated 2027 security and public order spending at 150 billion shekels, covering the IDF, police, intelligence agencies, and judiciary. The Finance Ministry acknowledged significant uncertainty about the defense budget’s size, which now appears certain to grow considerably. The next government will face a stricter budget framework and must find ways to finance current commitments or accept a higher deficit.