Israel’s 2026 Budget Passes Preliminary Vote in Knesset
Israel’s Finance Ministry has delivered the 2026 state budget draft to the Knesset, ahead of a preliminary vote. The plan, however, faces significant challenges due to political fractures that have strained the ruling coalition.
Background of the Budget Proposal
The budget, delayed by coalition infighting, was finally approved by the cabinet last month. Key adjustments include raising defense outlays to NIS 112 billion ($35.45 billion) from an initial NIS 90 billion. Additionally, the budget proposes loosening tariffs on dairy imports and introducing an NIS 30 ($10) tax on e-cigarettes, marking the first attempt by an Israeli government to regulate the burgeoning market.
Political Tensions and Deadlines
By law, the budget must be approved by the end of March, or an early election would be triggered. Knesset Legal Adviser Sagit Afik informed lawmakers that the first reading must take place by the following week, as delaying further would mean missing the deadline and potentially leading to early elections.
The budget, along with an accompanying economic plan, faces an uphill battle for approval as the government has become increasingly polarized. For over two years, parties in the ruling coalition have been divided over the war in Gaza, the ceasefire, and demands by the ultra-Orthodox Shas and United Torah Judaism parties to exempt yeshiva students from mandatory military service.
Ultra-Orthodox Parties and Military Exemptions
The two ultra-Orthodox parties have threatened to withhold support for the 2026 state budget until the passage of a controversial bill that would exempt yeshiva students from service. Despite these threats, Israel’s Channel 12 reported that they would ultimately vote in favor of the budget in its first reading but would withhold support for additional rounds of voting until the conscription regulation bill’s legislative process is completed.
Economic Implications
If the budget passes in its current form, state spending would amount to 662 billion shekels, excluding debt servicing. The deficit ceiling has been set at 3.9% of gross domestic product (GDP), a level the Bank of Israel deems too high as it does not allow for a reduction in the debt burden. The budget deficit slipped to 4.7% of GDP in 2025 from 6.8% in 2023, with defense costs due to the Gaza war pushing the deficit higher over the past two years.
Public Protests and Reactions
Dairy farmers and their supporters have protested against the milk reform led by Finance Minister Bezalel Smotrich. The protests highlight the broader economic and social tensions surrounding the budget, which includes changes that affect various sectors of the population.
Future Prospects
The budget’s passage through the Knesset Finance Committee may involve further changes before its final two votes in the plenum. The ongoing political tensions and the demands of coalition partners will likely continue to influence the budget’s final form and implementation.
Conclusion
As Israel navigates these complex political and economic challenges, the approval of the 2026 budget marks a critical step. However, the road ahead remains fraught with potential obstacles, particularly concerning the demands for military exemptions and the broader implications for the country’s economic stability.
