Budget on the Brink of Collapse: Israel Faces Financial and Political Paralysis Before the Crucial Deadline

SadaNews - As the countdown nears its end for the legal deadline to present the 2026 budget proposal, the Israeli government appears to be heading into the unknown. According to a report by the Hebrew economic newspaper "Calcalist," the Israeli government has not moved an inch towards preparing the budget, amid increasing signs of a structural crisis that goes beyond mere administrative delay.

The absence of planning, the delay in appointing a budget department manager, and the breakdown of understandings within the ruling coalition all signal an imminent political and financial explosion. While internal negotiations are supposed to be at their peak, the realities reveal a leadership vacuum and confusion in managing sensitive issues, threatening to disrupt the timely submission of the budget and presenting the government with a new existential test.

Calcalist clarifies that Israeli Ministry of Finance officials have drafted some visions regarding structural reforms and the targeted deficit rate, and held limited meetings with Finance Minister Bezalel Smotrich, but no substantive discussions have taken place with Prime Minister Benjamin Netanyahu.

Sources familiar with the budget preparation mechanisms confirmed to the newspaper that "the state budget can only take shape after the initial meeting between the finance minister and the prime minister, because only after gaining the prime minister’s support can the other ministers be convinced to rally around the plan."

Up to this moment, no such meeting has been convened, and according to the newspaper, this gap means that the government will be unable to submit the budget to the Knesset before October 31, as required by law, because merely approving it in the government takes an additional two months of internal work, followed by at least another two months to draft the legislation and conduct discussions in the Knesset and the relevant committees.

The crisis - according to Calcalist - is not limited to a lack of political coordination but extends to the absence of administrative leadership within the Ministry of Finance itself, as the central financial planning department has been operating without a director since the departure of Yuval Gradus two weeks ago.

Although Smotrich announced the selection of Maharan Brozensfer five weeks before Gradus's departure, the conflict of interest related to a company he co-founded with another former official halted the appointment process.

The newspaper revealed that the Ministry of Justice engaged in prolonged negotiations with Brozensfer on how to resolve the conflict of interest, and that the settlement was only recently finalized, now moving the case to the appointments committee, which will decide whether his position can be approved.

Calcalist explained that the controversy revolves around a consulting firm in which Brozensfer was involved with the former salary officer in the Finance Ministry, Kobi Bar Natan, and that this company had been providing negotiation services in wage-related matters, raising doubts about the integrity of his new position.

In parallel with these failures, the government faces an additional dilemma in passing the expansion it decided for the 2025 budget, amounting to 30.8 billion shekels (approximately 9.13 billion dollars), while raising the deficit ceiling by 0.5% of GDP.

The expansion is linked to military operations in Iran and "Gideon's Chariots" in Gaza, but Calcalist criticized the government, stating that these operations were known at the time of the budget preparation, revealing "inaccurate planning by the Finance Ministry and the Defense Ministry’s reliance on spending that exceeds estimates."

The government justified its decision with general expressions such as: "the continuation of military operations at a higher rate than expected, increasing demands from the Defense Ministry, unplanned military reinforcements, in addition to responses to victims of hostile actions."

However, the newspaper emphasized that these justifications simply mean that miscalculation and improvisation were behind the inflation in spending.

The biggest obstacle to passing the expansion comes from within the coalition itself, as the head of the "Degel HaTorah" party, Moshe Gafni, stated in a press release: "Due to the breach of financial understandings, senior rabbis recommended voting against any budget proposal presented by the government."

According to Calcalist, Gafni's objection focuses on a sensitive financial item, as the government decided to use 590 million shekels (about 175 million dollars) that were allocated for the "Ofeq Hadash" program to pay the salaries of unofficial Haredi school teachers, an item that has remained frozen due to legal and regulatory obstacles.

The newspaper explained that Smotrich had previously avoided touching this funding and compensated through cuts from other ministries but decided this year to cut 481 million shekels (about 142.64 million dollars) from it, considering the likelihood of releasing it to be slim. This decision ignited Gafni's anger, who is now seeking new financial alternatives for his educational institutions.

In contrast, the "Agudat Yisrael" movement linked its support for the expansion to passing a law exempting members of the Haredi community from military service, considering that "limiting the discussion to finances alone distorts the image of Haredi parties and reinforces the impression that everything is for sale in exchange for budgets."

Meanwhile, the eastern Haredi "Shas" party and "Degel HaTorah" seem more willing to negotiate financially, which may ultimately allow the expansion to pass. Nevertheless, Calcalist believes that these compromises expose the weakness of the government and its reliance on "blatant political extortion."

The newspaper concluded that Israeli citizens have become accustomed in recent years to "a continuous decline in their quality of life and a failed government administration," and that the current failure to prepare the budget is not surprising. In fact, some of them, according to Calcalist, "hope for the government's collapse and find their inability to pass the budget a reason for relief."

In summary, the financial confusion, military misjudgment, and disputes within the coalition with the Haredi parties all reflect a bleak picture of the government’s ability to manage state affairs, even in its simplest tasks of organized financial planning.