Knesset Advances 2026 State Budget Amid Political Tensions

On January 28, 2026, the Knesset approved the first reading of the 2026 state budget with a vote of 62 to 55. This budget, totaling NIS 662 billion (approximately $214 billion), must complete its legislative process by March 31, 2026, or risk triggering early elections. The budget includes significant allocations for defense, healthcare, and various ministries, with a defense budget set at NIS 112 billion ($34 billion). The proposed budget deficit target is 3.9% of GDP, an increase from the previously suggested 3.2%.

Knesset approves first reading of 2026 state budget2026 state budget passes first reading in Knesset with partial Haredi supportIsraeli lawmakers to hold initial vote on draft budget as elections loomState budget passes vote after haredi greenlight

The budget's passage comes amid ongoing tensions within Prime Minister Benjamin Netanyahu's coalition, particularly concerning the controversial military conscription bill affecting ultra-Orthodox (Haredi) students. Haredi parties, including Shas and United Torah Judaism, have threatened to withdraw support for the budget unless their demands regarding the draft law are met. The coalition's stability has been further challenged by political fractures stemming from the ongoing conflict in Gaza.

Israeli lawmakers to hold initial vote on draft budget as elections loomState budget passes vote after haredi greenlight2026 state budget passes first reading in Knesset with partial Haredi supportKnesset approves first reading of 2026 state budget

Netanyahu expressed concern over the potential for elections, stating, "We are in a very sensitive situation... the last thing we need right now is elections." The Haredi parties' support is crucial, as they hold significant sway in the coalition.

Israeli lawmakers to hold initial vote on draft budget as elections loom

Finance Minister Bezalel Smotrich has linked the budget's approval to reforms in various sectors, including a contentious dairy sector reform and increased taxes on banks. These proposals are expected to face substantial opposition from farmers and banking sectors. Additionally, the budget aims to adjust tax brackets to benefit certain workers, funded by a controversial property tax on land.

Knesset approves first reading of 2026 state budget

The Bank of Israel has raised concerns about the high deficit target, which does not facilitate a reduction in the national debt-to-GDP ratio, currently at 68.6%. The fiscal implications of the budget are critical, especially following increased defense expenditures due to the Gaza conflict.

Israeli lawmakers to hold initial vote on draft budget as elections loom

Opposition leader Yair Lapid criticized the budget as "wasteful" and detrimental to working citizens, asserting that it favors specific sectors close to the government. He condemned the negotiations surrounding the Haredi draft law as "bargaining over the security of the State of Israel." The Agudat Yisrael faction, part of the United Torah Judaism party, voted against the budget, with MK Yitzhak Goldknopf stating that "there are things that are more important than a budget."

State budget passes vote after haredi greenlight

The budget will now be reviewed by the Knesset's Finance Committee, where further debates and potential amendments are expected. The second and third readings in the Knesset are crucial for the budget's final approval, with the looming deadline of March 31 creating urgency in the legislative process.

Knesset approves first reading of 2026 state budget

• “This is bargaining over the security of the State of Israel, with the encouragement of Netanyahu,” — Yair Lapid, Opposition Leader

State budget passes vote after haredi greenlight

• “There are things that are more important than a budget, and in their name we oppose the budget.” — Yitzhak Goldknopf, MK, Agudat Yisrael

2026 state budget passes first reading in Knesset with partial Haredi support

The Knesset's approval of the first reading marks a significant step in a complex legislative process, reflecting the intricate balance of political power and economic strategy in Israel.

2026 state budget passes first reading in Knesset with partial Haredi support