War means not only reports from the front, but also the emptying of the state treasury. According to preliminary calculations, a direct confrontation with Iran will make a hole of 50 billion shekels in Israel’s budget. This colossal amount leaves the government with a difficult choice: either accept an uncontrollable deficit growth or get into the pockets of taxpayers.
Experts interviewed by Walla note an alarming paradox: while the IDF demonstrates high combat readiness, the country’s financial system is stalling, unable to adapt to the realities of a major war.
Budget impasse and confessions of the Ministry of Finance
Finance Minister Bezalel Smotrich was forced to state the obvious: it will not be possible to keep the deficit within the planned 3.9% of GDP. The draft budget for 2026, which was already subject to severe criticism, now requires radical revision. The situation is complicated by the fact that government agencies are still functioning according to temporary schemes, based on 2025 indicators. This creates managerial chaos in conditions where financial decisions need to be made instantly, and there is virtually no approved plan for the current period.
Invisible costs: defense appetite and compensation
The figure of 112 billion shekels, originally intended for security needs, seems naive to economists today. Actual spending on military operations could rise tens of billions above plan. This amount will inevitably be supplemented by colossal payments to the civilian sector and businesses affected by direct shelling and the indirect impact of the conflict. To plug these holes, the government will likely have to take extremely unpopular measures: raising taxes, increasing fuel costs and maintaining tight monetary policy with high interest rates.
Credit rating at risk
If hostilities drag on, the budget deficit risks approaching the critical level of 5% of GDP. For global financial markets, this will be a clear signal to revise Israel’s credit rating, which will make external loans more expensive and further strain the national economy. The situation is aggravated by the global background: the conflict in the Persian Gulf has already provoked a jump in oil and raw material prices, which is accelerating inflation within the country and slowing overall economic growth, creating the effect of a perfect storm.
Earlier, Cursor reported how the war with Iran will affect the wallets of Israelis.
Source:
cursorinfo.co.il