Netanyahu and Smotrich Clash Over $200 Billion Defense Budget Increase for 2026-28

A major budget dispute is unfolding between Israeli Prime Minister Benjamin Netanyahu and Finance Minister Bezalel Smotrich over tens of billions of shekels in additional defense funding. The Defense Ministry demands an immediate budget increase to meet urgent military procurement needs, which Netanyahu supports. However, Smotrich insists on limiting the increase to the bare minimum, citing concerns over fiscal responsibility and the upcoming elections.

The decision is urgent, as it must be finalized within days to allow government approval and passage of the 2026 budget in the Knesset before the Jewish High Holidays. The Defense Ministry refuses to delay purchases until the next government is sworn in, which could take months, warning that postponement would create capability gaps. Conversely, Smotrich argues against granting an open-ended budget increase during an election period, since the next government will bear much of the financial burden.

The Finance Ministry also highlights that the Defense Ministry has not fulfilled agreed-upon efficiency measures, which were supposed to offset some of the budget increase. While the exact amount of the requested increase remains unclear, it will be added to a previously approved 25 billion shekel boost, pushing the 2026 defense budget beyond 200 billion shekels. This nearly triples the defense budget compared to the start of the Iron Swords war.

Despite the large sums involved, the Finance Ministry remains cautiously optimistic, noting strong tax revenues and economic growth that keep the deficit target for 2026 stable at 4.9% of GDP. No broad government-wide budget cuts are currently planned, as there is little left to trim. The ongoing dispute follows a long-standing conflict over defense spending, with initial recommendations for a 130 billion shekel increase over a decade rising to 350 billion shekels, partly dependent on efficiency gains that have yet to materialize.

Netanyahu aims to formalize multi-year defense budget increases through government decisions, extending commitments into 2027 and 2028. However, the next government will face challenges funding these increases, as expenditure limits are near maximum and additional funds will require cuts elsewhere, tax hikes, or higher deficits.