Finance Ministry’s Plan to Curb Deficit and Fund Defense

The Finance Ministry in Jerusalem has a plan ready. It sits on a desk somewhere, a thick dossier of measures waiting for a new government to open it. This is not unusual. Technocrats prepare for all outcomes. But the contents of this plan carry a specific weight. They are designed to fund a defense budget that has swollen to an estimated NIS 187 billion, a direct and costly consequence of ongoing conflict. The parallel aim is to prevent the national deficit and the debt-to-GDP ratio from spiraling out of control. The math is harsh because the circumstances demand it.

This fiscal maneuvering starts with something every driver will feel this weekend. A temporary subsidy on gasoline, which knocked about NIS 1 per liter off the price for the last two months, expires at midnight on Saturday. The Ministry of Finance absorbed over half a billion shekels to keep that cap in place. When it lifts, the price at the pump will jump back up by at least that same shekel. With global oil prices creeping upward, the final increase could be steeper. Analysts forecast a liter of 95-octane gasoline hitting NIS 8.90. A slight dip in the dollar-shekel exchange rate might shave a few agorot off that, but the direction is unmistakably upward.

You can see the chain reaction from there. Fuel is a core input cost. When it rises, so does everything that moves by truck, train, or ship. The government has been using administrative measures to freeze prices on other essentials like electricity, water, and public transit. Those freezes cannot hold against this kind of pressure. As these adjustments kick in, they will push the Consumer Price Index higher. This is the mechanical reality of inflation, a tide that lifts all boats, whether they are seaworthy or not.

The ministry’s plan looks beyond the pump to broader revenue. It targets an estimated NIS 10 billion. One clear target is rental income. Under current law, you can earn up to NIS 5,654 per month from renting a residential property and pay no tax. The proposed change is simple and stark: tax from the first shekel earned. It also mandates formal reporting of all such income, closing a common loophole. This initiative has been stalled in the Knesset Finance Committee, but the fiscal need may now force it through.

• A so-called “Netflix tax” would impose a levy on international digital content providers operating in Israel.
• A suggested reduction in the tax benefits afforded to pension contributions.
• The ministry is reportedly reviewing the list of sectors that enjoy VAT exemptions.
• There are deep cuts to discretionary coalition funds.
• Demands for efficiency savings across all government ministries.
• A simple continuing budget may extend the current year’s spending.

The macro picture is defined by that NIS 187 billion defense number. To fund it, the plan envisions deep cuts to discretionary coalition funds and demands for efficiency savings across all government ministries. The immediate political challenge is the calendar. The next government, whoever forms it, must pass a budget for 2027 almost immediately. It may even opt for a two-year budget to provide stability. This budget will be bundled with the contentious Economic Arrangements Law, a vehicle for sweeping policy reforms. Given the tight timetable, a simple continuing budget—extending the current year’s spending—is a likely stopgap, but only a temporary one.

Remarkably, financial markets here have shown a degree of resilience. Over the weekend, Prime Minister Benjamin Netanyahu issued stark warnings about potential economic sanctions and cuts to U.S. aid, framing them as risks of political change. When trading opened on the Tel Aviv Stock Exchange yesterday, the final session before the election, prices initially dipped. The decline was brief. The market swiftly turned positive, finishing the day in the green. Only banking stocks lagged. After a month of decline driven by electoral uncertainty, traders seemed to be pricing in a different possibility: that the election itself, regardless of outcome, could clarify the path forward. The Finance Ministry’s plan, waiting in its drawer, is that clarified path. It is a roadmap of difficult choices, where the price of gasoline is just the first toll.