As the cost of Israel's multi-front war intensifies, defense spending is placing an increasing burden on the budget. The government's increased borrowing during the war period deepens pressure on public finances and raises concerns about cuts in education and healthcare expenditures.
War bill reaches 405 billion shekels
Amir Yaron, Governor of the Bank of Israel, announced that the total cost of the war, which began after October 7, 2023, and spread across interconnected regional conflicts, had reached 405 billion shekels, approximately 138 billion dollars, by the end of April. Yaron noted that this figure exceeds 17% of the gross domestic product.
The Ministry of Finance also calculated that the military campaign against Iran cost the state an additional 35 billion shekels. This amount was shared as the initial cost incurred until the ceasefire took effect on April 8.
Defense budget more than doubles
Following the approval of the 2026 budget at the end of March, the government announced that the defense ministry's budget has more than doubled since October 2023. During the same period, the government heavily borrowed on international markets in 2024 and 2025 to finance the war effort.
Treasury data shows that the public debt-to-GDP ratio has risen above 69%, compared to around 60% before the war. Increases in taxes and social security contributions have also added to the public burden.
Second economic cost: growth and income loss
Esteban Klor, an economics professor at Hebrew University, stated that Israelis are paying twice for the war. According to Klor, the first cost is the reduction in social spending and investments in public services due to broad budget cuts; the second cost is the damage to economic growth.
Klor explained that the quality of education, infrastructure, and the healthcare system will be negatively affected by this pressure. Although the initial shock to the economy has somewhat been absorbed, a 3.3% annualized contraction was recorded in the first quarter of 2026.
Mobilization affects production, incomes decline
Since October 2023, tens of thousands of reservists have been kept on continuous mobilization, creating pressure on production. Klor noted that a significant portion of the workforce being in the military rather than at their jobs weakens production.
According to a June 1 survey by the Israel Democracy Institute, 31% of participants reported a decrease in their wages or incomes since October 7, 2023. The impact was felt more severely among freelancers and the lowest income groups.
‘Trauma economy’ warning within government
Tamar Levy-Boneh, Deputy Head of the Ministry of Finance responsible for budgets, issued a "trauma economy" warning at an economic conference in Herzliya. Levy-Boneh said the shock and sense of failure caused by October 7 could push the military to continuously demand more resources.
She emphasized that security institutions must meet their needs without damaging living standards and must take responsibility in this process.
Netanyahu seeks greater military autonomy
Prime Minister Benjamin Netanyahu is pursuing a different approach. In September 2025, he stated that Israel has no choice but to transform into a war-focused "Super Sparta."
While disagreements have emerged with U.S. President Donald Trump over Israel’s attacks in Lebanon and the war with Iran, Netanyahu calls for greater self-reliance. On May 3, he confirmed a 350 billion shekel investment in the national defense industry over the next decade, stating it is necessary to achieve "overwhelming air superiority."
This situation reveals that the war is imposing a heavy toll not only on the battlefield but also on the budget and daily life. Balancing increased military spending with the future of social services has become one of the biggest challenges facing Israel’s economy.
