Israel finance minister Smotrich: Israel cabinet meeting now to approve war budget

The Israeli cabinet has approved the 2026 state budget following intense negotiations, marking a critical step in addressing fiscal challenges amid ongoing security demands. The budget, totaling NIS 662 billion ($205 billion), includes a defense allocation of NIS 112 billion ($34 billion), reflecting a compromise between Finance Minister Bezalel Smotrich and Defense Minister Israel Katz. Smotrich advocated for reduced defense spending, while the military had initially sought NIS 140 billion. The final agreement assumes an average of 40,000 reservist call-ups in 2026, down from earlier projections, to ease burdens on soldiers.

The budget now advances to the Knesset for approval by March 31, 2026, with failure to meet this deadline triggering automatic elections in June. Current fiscal challenges include a deficit exceeding 3.9% of GDP, exacerbated by war-related costs of NIS 9 billion beyond the defense budget. Smotrich emphasized flexibility in adjusting allocations as the conflict with Iran evolves, stating the military will receive necessary resources.

Reforms aim to address the cost of living, including reduced tariffs on dairy imports and an NIS 30 ($10) tax on e-cigarettes. However, opposition leaders criticized the budget for increasing taxes on ordinary citizens to fund subsidies for ultra-Orthodox communities, which exempt yeshiva students from military service.

The budget's passage underscores government efforts to balance economic stability with security priorities, though political tensions and public dissent highlight ongoing challenges in achieving broad consensus.