15 billion and a ceiling: Treasury locks horns with Defense Ministry
Israel’s budget battle escalates into a high-stakes standoff over 2026 defense funding and long-term fiscal control.
“They will not receive a shekel beyond 15 billion shekels,” says the Finance Ministry following the budget agreement between it and the Defense Ministry, which was prepared by the National Security Council (NSC) and published at the end of last week. The Finance Ministry is taking a firm stance, even though the agreement explicitly states that Prime Minister Benjamin Netanyahu was convinced by the IDF’s position that “there is a budget gap of 40 billion shekels.” It also stipulates that during October and November, a joint review by the Finance and Defense Ministries will assess actual spending, and if necessary, the Finance Ministry will transfer additional funds up to a ceiling of 25 billion shekels, and will even ensure that the necessary legislation is advanced.
What, then, is the meaning of the Treasury’s firm declaration that it will not be required to provide the full amount that the Defense Ministry and the Prime Minister believe is needed? Conversations with senior officials in the ministry suggest this is a strategic move. The Treasury believes that by presenting a tough, uncompromising stance, insisting that the 2026 budget will not be reopened, the Defense Ministry will be forced to prepare for a scenario in which it receives up to 25 billion shekels less than it demands. In effect, the Treasury is playing a game of “chicken” with the Defense Ministry, and citizens can only hope it does not end in collision.
If the sides continue their confrontation until the final months of the year and only at the last moment require an additional 25 billion shekels, the outcome will be negative for all parties, and especially for the public. First, it will signal that Israel has failed to adhere to its budget frameworks for four consecutive years. Second, ongoing uncertainty is harmful to the defense establishment, which requires long-term budget stability. Third, earlier agreement could have enabled not only closure of the 2026 budget but also preparation of the 2027 budget and planning for the post-U.S. aid era.
On paper, the agreement appears to be an achievement for the Defense Ministry, which secured 15 billion shekels without conditions. However, the Finance Ministry also claims two significant wins. First, the 2026 budget will not be reopened. According to senior Treasury officials, the risk of reopening existed even before the agreement, meaning uncertainty has not increased. Second, and less discussed but more important, the Treasury argues that the 350 billion shekels planned over the coming decade will not be distributed evenly. While the defense establishment may have expected significantly higher allocations in the early years, it was agreed that only about 20 billion shekels would be allocated in the initial phase.
The Face Behind the Structural Struggle
The conflict between the Treasury and the Defense Ministry is fundamentally structural. In every country, there is inherent tension between defense spending and civilian needs, guns versus butter, tanks versus healthcare. In Israel, however, this tension is intensified after years of war during which the defense system effectively operated with an open budget. Now, it must be brought back into fiscal discipline.
But the dispute also has personal dimensions. On the Treasury side stands the new budget commissioner, Maharun Frozenfar, who came from the defense establishment. He is regarded as highly familiar with the defense budget and as a tough negotiator, eager to prove himself in his new role.
On the other side is the Director General of the Defense Ministry, Maj. Gen. Amir Baram, former deputy IDF chief of staff, who has deep familiarity with the system’s budget. Speaking at the Herzliya Conference last week, he accused the Treasury of intimidation, deception, and obfuscation, claiming it creates security gaps. While Baram denied any personal dimension to the dispute, behind the scenes personal tensions are clearly present.
At a certain stage, the dispute escalated to the National Security Council. Its new head, Shmuel Benezra, was tasked with mediating and appears to have achieved partial success. Notably, some Treasury budget officials did not attend all discussions. The Accountant General, Michal Abadi-Boyanjo, reportedly told colleagues she was “alone representing the Treasury.” Treasury officials dismissed this as gossip, but the absences raise broader questions about inter-ministerial coordination.
A more fundamental question remains: will the billions allocated actually improve Israel’s security?
The October 7 war exposed critical gaps in preparedness. Drones from Lebanon, Syria, Iraq, Yemen, and Iran penetrated Israeli airspace with little effective response. The defense establishment later argued it had been aware of the threat but prioritized other capabilities, including missile defense against Iran.
In the subsequent Iran conflict, it became clear that preparedness was only partial, with limited procurement of Arrow 3 interceptor missiles relative to operational needs.
Repeated claims about “limited budgets” have also surfaced during drone attacks on IDF forces in southern Lebanon, which have taken a heavy toll. Meanwhile, Hamas continues to govern Gaza, rebuild infrastructure, recruit fighters, and restore operational capabilities despite Israeli military efforts.
What lies ahead is the possibility of renewed fighting in Gaza. In recent weeks, the Southern Command has approved operational plans for expanded operations. Some assessments suggest that by September or October, a decision will be made that diplomatic efforts to disarm Hamas have failed, potentially paving the way for renewed conflict.
If that occurs, additional budgetary demands will likely follow, because a new war in Gaza will not finance itself.
A Slap in the Face to Wounded Soldiers
The budget framework is also intended to reduce a growing debt of approximately 15 billion shekels owed by the Defense Ministry to major defense contractors Rafael, Israel Aerospace Industries, and Elbit Systems. This debt has accumulated due to delayed payments, effectively turning the companies into credit providers for the state.
It remains unclear whether repayment will include financing costs incurred by these firms.
Criticism has also emerged over rehabilitation funding for wounded IDF soldiers. Since the start of the war, more than 26,000 wounded have entered the Defense Ministry’s Rehabilitation Division, an increase of 40% compared to pre-war levels.
A committee led by Prof. Shlomo Mor-Yosef, former director general of Hadassah Medical Center and the National Insurance Institute, recommended transforming the Rehabilitation Division into an independent national authority, with additional annual funding of billions of shekels. However, these recommendations were not included in the current budget agreement.
Meanwhile, the Disabled IDF Veterans Organization has launched a campaign against Finance Minister Bezalel Smotrich, accusing him of failing to address the needs of wounded soldiers.
