The Netanyahu government risks early elections ahead of the Israel cabinet vote on the 2026 state budget, which Finance Minister Bezalel Smotrich announced today is expected to take place next month, after being delayed for some time. However, the state budget approval faces a difficult political battle that could lead to elections. Specifically, under Israeli law, parliament must approve the budget by the end of March, otherwise parliamentary elections are called.
Israel: Budget disputes threaten government stability
It should be noted that in previous coalition governments led by Prime Minister Benjamin Netanyahu, budget disputes have played a role in triggering early elections. His current government coalition, consisting of right-wing and religious parties, has been in power since 2022, with the next elections scheduled for October 2026. However, the government has been divided over the past two years due to the war in the Gaza Strip, the ceasefire, and demands from ultra-Orthodox Jewish parties for exempting ultra-Orthodox Jews (Haredim) from mandatory military service.
Nevertheless, Smotrich emphasized that the government will manage to pass the budget, which, he said, should stay away from political disputes. “I am convinced that we must vote on the budget and I am convinced that the prime minister is also convinced and determined to do so,” the finance minister said at a press conference to reveal the government’s economic plan for next year.
Finance Ministry officials said there is a gap of 40 billion shekels ($12.1 billion) between the 2025 budget and the ministries’ funding requirements for 2026. Netanyahu has said little about the prospect of holding early elections. Most polls consistently show he would lose the next elections.
Israel: The 2026 state budget challenges
With the 2026 budget not expected to be approved by January 1st, a proportionally distributed 2025 budget will be used with 1/12 allocated each month until a new budget is voted on – a situation Smotrich said he has no problem occurring for a few months. “We cannot hold the economy and the country hostage – the army, the citizens,” the far-right minister stated.
Smotrich and other ministry officials criticized the Defense Ministry for high spending demands to fund the war in the Gaza Strip, which has already cost more than 250 billion shekels and tens of billions more in compensation for reservists and compensation claims. Finance Ministry Director General Ilan Rom said military spending is excessive.
The ministry reduced its economic growth estimate for 2025 to 2.8%, while expecting 5.2% growth in 2026. It forecasts a budget deficit of 3.2% of GDP next year. While the budget is not fully drafted currently and with the cabinet vote set for December 4th, Smotrich said he would reduce income taxes but impose a tax on banks for earning high profits and paying low interest on deposit accounts. He also aims to abolish VAT exemptions for foreign tourists on services such as hotels and car rentals.
