Israel faces two escalating economic threats: the government’s decision to take total military control of the Gaza Strip and a stalled 2026 budget process. Senior officials warn that together they could trigger deep spending cuts, tax hikes and potential credit downgrades as war costs soar.
The security cabinet last week approved a plan for full military control of Gaza, a move expected to carry massive financial consequences for the state budget, businesses and citizens.
Finance and defense officials estimate the cost of calling up reserves and arming troops at roughly 350 million shekels ($94 million) per day — about 10–11 billion shekels ($2.7–$2.9 billion) a month and up to 50 billion shekels ($13.4 billion) by year’s end, depending on the timing of the operation.
On top of that, Finance Minister Bezalel Smotrich said Israel will spend 3–4 billion shekels ($800 million–$1 billion) to set up humanitarian zones for displaced Palestinians and expand aid deliveries, beyond the 670 million shekels ($179 million) already approved.
Maintaining full control of Gaza after a military takeover could cost an additional 10–15 billion shekels ($2.7–$4 billion) per month — 120–180 billion shekels ($32–$48 billion) annually — not including war expenses or economic losses.
A senior Finance Ministry official told Ynetnews the combined costs could push this year’s deficit to 6–7%, with more increases likely next year. “Credit rating agencies, all of which have already issued a negative outlook for Israel, may soon downgrade Israel’s rating to levels seen in less developed countries,” the official said.
Meanwhile, the 2026 state budget has yet to be drafted, raising the risk it will miss the legally mandated Dec. 31 approval deadline. Without it, Israel would start the new year operating under a stopgap budget, limiting government spending and potentially causing serious economic disruption.
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The government has yet to hold a single meeting to discuss the budgetary impact of total military control of Gaza, even as hundreds of thousands of reservists are expected to be called up in the remaining months of 2025. Experts warn the costs will inevitably lead to cuts in education, health, welfare and infrastructure, alongside higher taxes.