Israel's Debt Surges Amidst Election Focus on Security

Israel's national debt has significantly increased, reaching 1.4 trillion shekels, or approximately $480 billion, a notable rise from 1.07 trillion shekels ($365 billion) before October 2023. This escalation is largely attributed to substantial military spending, with costs for operations in regions like Gaza, Lebanon, Syria, and Iran estimated at 385 billion shekels ($129.8 billion) since 2023, according to data from the Bank of Israel.

Despite parliamentary elections scheduled for October, public political discourse has largely bypassed the growing national debt, focusing instead on regional security concerns. The heightened defense expenditure has led to a significant increase, from 5.2 percent of the country's Gross Domestic Product (GDP) in 2023 to over 8 percent in 2024.

Fiscal Warnings and Economic Outlook

Economic experts concern that the current fiscal trajectory is unsustainable without significant policy changes. Such adjustments could include substantial tax increases or considerable reductions in civilian spending. The International Monetary Fund (IMF) has cautioned that Israel's projected budget deficit for 2026 remains too high to effectively stabilize debt levels, suggesting that the debt burden could continue to grow without corrective measures.

Professor Michael Ben-Gad of City St George's, University of London, noted that Israel's long-term debt-to-GDP projection now fluctuates between 67 percent and 70 percent, a considerable rise from about 60 percent observed before October 2023. He indicated that a continued increase in the debt ratio is probable unless specific actions, such as higher taxes or cuts to civilian expenditures, are implemented. Despite these fiscal pressures, the Israeli economy is projected to maintain a 3.5 percent growth rate, partly supported by its robust defense and cybersecurity industries.

Challenges to the Tax Base

Further complicating Israel's fiscal situation is a reported increase in emigration among high-income earners. Tax authority data shows an 80 percent rise in departures among the top 10 percent of earners since 2019. This trend narrows the tax base, which is crucial for supporting the country's mounting debt obligations and restricts the government's ability to generate sufficient revenue for debt servicing and essential public services.

Historically, Israel has faced significant debt challenges; following the 1973 war, the nation's debt-to-GDP ratio reached 284 percent by 1984, prompting subsequent policies to limit borrowing. Economists emphasize the critical need for political leaders to address current economic realities, yet election campaigns continue to prioritize security concerns over discussions about the financial implications of ongoing military commitments and the nation's overall fiscal health.