Mansour Barati – Researcher on Israeli affairs

The cabinet of the Israeli regime approved the draft budget for 2026 on December 5, 2025—an action that, according to reports from Reuters, The Times of Israel, and Haaretz, is directly linked to the legal requirement to pass the budget by March 31, 2026.

1: Parliamentary Deadline and Controlled Expansion of the Budget Deficit
Failure to pass the budget by this date would lead to the automatic dissolution of the Knesset and early elections, which the most likely estimates place in June 2026. However, in any case, the next elections of the Israeli regime will be held in 2026.

Until this process is completed, Benjamin Netanyahu’s cabinet must operate under a monthly budget mechanism based on the 2025 figures—a situation that limits the scope for executive maneuvering and delays long-term decision-making.

The total budget volume is estimated at approximately 662 billion shekels, roughly equivalent to 204 to 205 billion dollars.

Within this framework, the government has decided to raise the budget deficit ceiling from 3.2% to 3.9% of GDP—a change that includes approximately 15 billion shekels in additional deficit spending.

Analysis by Haaretz and references to the positions of the Central Bank of the Israeli regime indicate that this decision, despite awareness of its potential consequences for inflation and government financing costs, has been adopted to manage short-term pressures—not based on a review of the cost structure or sustainable revenue sources.

2: Defense Budget; Financial Compatibility at the Expense of Operational Flexibility
The most challenging part of the budget negotiations revolved around the allocation of defense resources. According to Haaretz reports, the Israeli military considered a level of around 144 billion shekels necessary for the defense budget, while the Ministry of Finance proposed a figure close to 93 billion shekels.

The final agreement on the figure of 112 billion shekels, as reflected in reports from Reuters, The Times of Israel, and The Jerusalem Post, is more a product of balancing financial constraints and security requirements than the result of strategic consensus.

To align expenses with this ceiling, a decision was made to reduce the annual number of reserve forces called up from approximately 60,000 to 40,000, assuming an average of about 60 days of annual service.

This decision, made contrary to the recommendations of some senior commanders, indirectly shifts part of the war costs to operational readiness.

Alongside this, a 725 million shekel package was approved to strengthen security infrastructure in the West Bank and the eastern border over the next three years, indicating the stabilization of this area as a sustained expenditure axis.

Simultaneously, the experience of 2024 and 2025, and analysis by Haaretz, suggest that part of the actual defense costs will likely be covered once again through mechanisms outside the official budget. This situation makes financial transparency and an accurate assessment of the long-term burden of security policy difficult.

3: Livelihood Policies, Taxes, and Coalition Considerations
In the socio-economic sphere, the 2026 budget includes a combination of limited supportive adjustments and increased tax pressures.

According to The Times of Israel report, the ruling coalition has expanded the scope of the 20% and 31% tax brackets for middle incomes, raised the VAT exemption ceiling for imports from $75 to $150, and approved reforms in the dairy market to reduce prices—measures described as aimed at alleviating some of the cost-of-living pressure on the middle class.

In contrast, the approval of a 1.5% tax on residential land, tighter restrictions on cash holdings and check discounts, taxes on electronic cigarettes, and a new tax on banks with an estimated annual revenue of about 750 million shekels indicate that financial resource provision still largely relies on increasing the indirect tax burden.

On the other hand, the allocation of about 5.2 billion shekels to coalition funds—a significant portion of which goes to projects related to the West Bank and religious institutions—along with a 4.5 billion shekel increase in the budget of the Ministry of National Security and the creation of 3,000 new job positions, reflects the continuation of specific political priorities in the government’s expenditure structure.

The reaction of opponents, including statements by Yair Lapid, who describes the budget as a tool for covering coalition costs and deepening financial inequalities, is understandable within this framework.

Overall, it seems that the primary focus of the 2026 budget of the Israeli regime is on simultaneously managing the pressures of war, social dissatisfaction, and political uncertainties—even if this approach leads to the postponement of structural reforms and increased financial risks in the medium-term horizon.