Cabinet raises deficit target, Treasury cuts growth forecast

The defense budget will increase from NIS 111 billion in the original 2026 budget to about NIS 140 billion.

Israel’s cabinet last night discussed required adjustments to the budget due to the war in Iran. Prime Minister Benjamin Netanyahu sided with the Ministry of Defense and opposed the Ministry of Finance’s position on the matter. This contradicted previous agreements with Minister of Finance Bezalel Smotrich – at least that’s how the Ministry of Finance sees it – the Ministry of Defense brought further demands that inflated the budget at the last minute.

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Accordingly the defense budget will be increased from about NIS 111 billion planned in the 2026 budget to about NIS 140 billion. In addition, a “coffer” of NIS 7 billion will be set aside in case of extra security needs, with the assessment being that these funds will also be used up soon.

The spending limit in the state budget will be breached, and the fiscal deficit target will rise to 5.1% of GDP. This is a higher deficit than the figure with which Israel ended 2025 (4.7% GDP), and it will prevent the debt-to-GDP ratio from continuing to decline.

At the same time, due to the disruption to the economy created by the Iran war, the chief economist at the Ministry of Finance has reduced the growth forecast for 2026, from 5.2% to 4.7%. However, the Ministry of Finance has increased the state revenue forecast by about NIS 10 billion, following a positive surprise in tax collection in January-February. Without this increase, the deficit target would have deepened to an even higher level of about 5.5% of GDP.

Published by Globes, Israel business news – en.globes.co.il – on March 11, 2026.