Israel can afford a bigger defense budget. Can it afford the civilian trade-off?
The IDF says the security environment demands a historic buildup, but Israel already ranks near the bottom of the OECD in primary civilian spending.
As implausible as the number may sound, the defense establishment is demanding a staggering NIS 183 billion for 2026, compared with the original approved budget of NIS 112 billion. According to the Nagel Committee, which examined Israel's defense budget for the coming decade, the defense budget for this year was supposed to be NIS 96 billion, NIS 87 billion less than the current demand. And that may be only the beginning.
1. The operational case
The defense establishment came prepared to "fight" the Treasury once again, with the Finance Ministry opposed in principle to such an increase unless it is accompanied by adjustments such as spending cuts or tax increases.
It is difficult to dismiss the operational picture presented by the IDF. The military argues that since the Nagel plan was formulated, it has taken control of an additional 800 square kilometers, roughly 600 in Lebanon and 230 in Gaza, an area about the size of Singapore. The underlying formula is simple and was not invented by the IDF: when missions expand, inputs must expand as well.
The operational argument is concrete and, in many cases, already visible. Israel's land forces are operating with heavily worn equipment. Tanks are sitting idle without engines because the rate of wear has exceeded the rate of repair. Production lines that have been operating at emergency capacity are showing signs of strain, and restoring them later could cost considerably more than maintaining them now.
There are also items that need to be ordered urgently for commercial and economic reasons rather than immediate operational ones. Some equipment and components have extremely long lead times between the initial order and final delivery.
There is another constraint. If the IDF does not secure slots on American production lines in the coming months, those slots could be taken by Egypt, Qatar or Saudi Arabia.
In other words, the professional echelon is seeking budgetary continuity not only for immediate operational needs but also to lock in long-term contracts. Not everything needs to be paid for today, and not every commitment needs to extend for a decade and a half. But some decisions have to be made well before the equipment itself is required.
2. The political reality
The new reality imposed by the political leadership, above all by the prime minister, who made strengthening the IDF a central political promise, has once again produced an open confrontation with the Finance Ministry. That dispute erupted publicly last week.
Yet there are several points on which the two sides appear to agree. The first is that the political leadership must ultimately decide how the expanded defense budget will be financed. That is its responsibility.
The second is that defense spending as a share of GDP is unlikely to return to its previous level in the coming years. The defense establishment expects the ratio to remain around 6%-7%, while the Finance Ministry is resisting such a trajectory.
The disagreements begin with the details.
The IDF has made clear that NIS 12.5 billion of the NIS 50 billion in additional spending that the prime minister announced last Thursday is intended for public diplomacy rather than defense. It therefore does not count that money as part of the military budget. That reduces the headline figure in the 13-year plan from NIS 400 billion to NIS 387.5 billion.
In addition, NIS 50 billion of the plan is supposed to come from "internal revenues" rather than direct government budget allocations. The Finance Ministry is unlikely to regard those funds as an actual budgetary source unless they are clearly identified and secured.
3. The problem with going back down
The defense establishment's argument is that the current numbers are a product of the extraordinary security situation and will decline once conditions stabilize.
The problem is that stabilization is not necessarily symmetrical with the increase.
Suppose that in two years Israel decides to reduce defense spending to NIS 120 billion. That would still be roughly twice the level of 2022, but it would require a reduction of more than NIS 60 billion in a single year.
In systemic terms, that would not be a normal budget adjustment. It would be a fiscal shock.
The explanation can be found in the arguments made by senior defense officials themselves. They say that rebuilding production lines is expensive and that long-term contracts, reserves, manpower and production slots create rigid commitments.
But the same logic that explains why the defense establishment cannot rapidly expand also explains why it cannot rapidly contract.
Once a system has been built around a particular level of spending, it does not return to its previous size simply because the government changes a number in the budget. It contracts through difficult decisions, canceled contracts, reduced manpower and potentially significant economic disruption.
4. Efficiency is still unresolved
The debate over efficiency in the IDF is perhaps the clearest example of the gap between the two sides.
The defense establishment says it has had an efficiency program in place since the Brodet report and that it generates approximately NIS 2 billion a year, which it considers close to the maximum achievable through its existing methods.
But the efficiency assumptions underpinning the NIS 400 billion multi-year plan are on a different scale.
There is also no agreement over what "efficiency" actually means.
The Finance Ministry is demanding cuts in internal spending. The IDF, meanwhile, also points to external sources of funding, including the expansion of production lines financed by other countries.
Those are fundamentally different measures that happen to carry the same label.
Reducing spending is largely within the government's control. Revenue from exports depends on demand, diplomatic relations and foreign policy, including the possibility of arms embargoes, a risk that the defense establishment itself acknowledges has become a recurring feature of the international environment.
5. The civilian price
The deeper problem lies outside the defense establishment's immediate field of vision.
OECD data for 2023 places Israel in an exceptional position when it comes to primary civilian spending, total government spending excluding defense and interest payments. This includes health, education, welfare, transportation, housing and public-sector wages.
In Israel, primary civilian spending amounted to 31.1% of GDP. The OECD average was 41.2%, leaving a gap of more than 10 percentage points of GDP. Israel ranked third from the bottom, ahead of only Costa Rica and Ireland.
The simple meaning is that Israel already has a substantial civilian spending gap, amounting to hundreds of billions of shekels a year.
Every shekel directed toward a multi-year defense buildup without an identified funding source does not come from nowhere. It comes from a state whose civilian spending is already among the lowest in the developed world.
If Israel wants to grow, and therefore expand the economic base needed to finance higher defense spending, it has to invest in the civilian economy as well.
Budget execution data from the beginning of the year illustrates the tension. Defense spending increased 12.6% to NIS 108.2 billion, while civilian spending fell nominally by 1.3%. Some of that difference is technical and temporary, but the direction is difficult to ignore.
The defense establishment presents the budget debate as a choice between security and security risk.
The real choice is more complicated.
It is between defense spending and everything else the state is expected to provide: health, education, transportation, housing and the infrastructure needed to sustain economic growth.
Few politicians frame the debate in those terms because once it is presented that way, the decision becomes unmistakably political, and someone has to take responsibility for the trade-offs.
That is precisely what the budget process is supposed to do. It is supposed to establish a baseline, identify funding sources, assess the civilian cost and determine what the country can sustainably afford.
Instead, the decision is increasingly being made first, with the bill to be presented later, if it is presented at all.
