Israel to widen fiscal deficit target to fund war

Israel’s planned fiscal deficit for 2025 will widen to 5.2% of GDP to finance the ongoing war in Gaza and June’s operation against Iran. After months of preparations at the Ministry of Finance, the cabinet will meet tomorrow to decide on opening the state budget for the current year and increasing the spending limit.

The Ministry of Finance and the Ministry of Defense agreed on an addition of over NIS 28 billion for 2025 but in the end the Ministry of Defense will receive an additional NIS 31 billion.

Israel’s fiscal deficit dips below 5% of GDP

The Ministry of Finance says that the budget increase for the IDF should be enough to continue intense military operations until the end of 2025 and also supports a scenario of occupying Gaza. The total spending limit will increase to about NIS 650 billion.

The current 2025 budget was built around a planned maximum fiscal deficit of 4.9% of GDP. In monetary terms, this means a deficit of about NIS 98 billion. An increase of up to 0.3% of GDP reflects a widening of the deficit by about 6 billion shekels – a significant amount, but significantly lower than the budget increase that was agreed upon.

The main reason for this is a continuous increase in state revenues from taxes, beyond the forecasts that were taken into account when the original budget was approved.

The Ministry of Finance also plans to implement several cuts, including a difficult political measure: the return to the Ministry of Finance of about NIS 600 million shekels allocated in coalition agreements for the New Horizon program in the education networks of the haredi sector. In addition, cuts of about NIS 700 million will be made in the budgets of government ministries, and more such cuts in future years.

Published by Globes, Israel business news – en.globes.co.il – on August 18, 2025.

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