Israel’s budget deficit narrowed in November as the government entered the final month of the 2025 fiscal year, with the gap falling 0.4 percentage points to 4.5%, a relatively low and unexpected level.
The monthly deficit reached 3.3 billion shekels ($1.023 billion), compared with about 12.2 billion shekels ($3.78 billion) in November last year.
However, the Finance Ministry noted that December traditionally brings a sharp rise in spending as ministries rush to exhaust their annual allocations, typically resulting in a significant end-of-year deficit. Final figures for December will be published in early January.
The original deficit target for 2025 was set at 4.2%, later raised to 4.7% when the state budget passed, and subsequently increased to 4.9%. The adjustments were made partly to fund temporary housing for evacuees displaced after the 12-day war against Iran and to cover unplanned reserve mobilization costs not foreseen when the budget was approved in March. Most recently, the government authorized breaching the budget framework and lifting the deficit target to 5.2%, alongside approving roughly 30 billion shekels ($9.3 billion) in additional defense funding, including 1.6 billion shekels ($496 million) for humanitarian aid in Gaza and more than 3% in across-the-board ministry cuts.
In the 2026 budget, the deficit target has risen from Finance Minister Bezalel Smotrich’s initial goal of 3.2% to 3.9% (78 billion shekels), a figure the Bank of Israel considers significantly higher than desirable. A larger deficit means the government will eventually need to borrow more, cut spending or raise taxes. Analysts warn that persistently high deficits could prompt further credit-rating downgrades due to growing public debt. The increase stems from higher defense spending — approved contrary to Treasury preferences — and from abandoning planned fiscal measures that some officials viewed as bargaining “trial balloons.”
The unexpectedly low November deficit was driven largely by higher-than-forecast tax revenues, which have risen 15.1% since the start of the year. As a result, the cumulative 2025 deficit shrank 0.4% compared with October.
According to the latest figures, the deficit since January totals 74.7 billion shekels, while the rolling 12-month deficit stands at 93.5 billion shekels.
State tax revenues reached 45.8 billion shekels in November and 503.3 billion shekels since the start of the year, fueled mainly by strong corporate tax collection. That compares with 437.2 billion shekels over the first 11 months of last year.
Government spending totaled 49.1 billion shekels in November and has reached 578 billion shekels so far in 2025, up from 554 billion shekels in the same period last year. After the budget ceiling was revised in early autumn, ministries are authorized to spend up to 650 billion shekels by the end of December.
Under the 2026 budget, the government projects the deficit will be “only” 3.9%, up from earlier targets of 3.0% and 3.2%. Still, expectations are that the final gap will be much larger due to further anticipated increases in the defense budget, currently set at 112 billion shekels — far below the defense establishment’s demand of 144 billion shekels.