The IDF has begun to call up thousands of reservists in advance of the planned expansion of operations in the Gaza Strip. Apart from increasing further the grinding toll on the reservists and their families in the past eighteen months of war, this step involves significant costs to the state, raising the level of uncertainty in the economy.
The Ministry of Defense has not yet asked the Ministry of Finance for supplementary budgets to cover the planned escalation in the Gaza Strip. It is still too early for that, and at the moment everyone is waiting to see how events will unfold. But past experience of relations between the IDF and the Ministry of Finance teaches that a request for budgetary assistance is a matter of time, especially as a resumption of intensive fighting is not the foundation on which the 2025 budget, which finally passed through the Knesset only a month ago, is built.
This year’s defense budget totals NIS 110 billion. NIS 15-17 billion of that is for drafting reservists, and is supposed to suffice for a whole year. The sum for this item was calculated on the basis of a forecast of a gradual decrease in the intensity of security operations over 2025, an assumption that has now collapsed in the face of the reality of escalation in the fighting. Since the ceasefire expired in March, expenditure on service by reservists has jumped, and become detached from the original plan, and that is even before the current call-up, which could eventually force the Ministry of Finance to reopen the budget.
Finance Ministry seeks to prevent a repeat of 2024
The overall cost of drafting a reserve soldier is almost NIS 1,000 a day. On the most optimistic scenario, in which the current round amounts to a fairly small number of reservists being drafted for one or two weeks, after which a deal is struck for the return of the hostages held by Hamas or there is a lull for some other reason, the cost will be in the hundreds of millions of shekels. That is an amount that the large defense budget approved for 2025 should be able to absorb, though not easily.
It is doubtful, however, whether such a speedy outcome of embarking on a renewed military operation is a realistic prospect. Just the call-up and training could take a week. The Ministry of Finance has tried to prevent a repeat of last year, when it was necessary to return to the Knesset every few months with requests to exceed the spending limit set in law, as the fighting and the evacuation of border residents continued longer than planned. In this year’s budget, the considerable sum of NIS 10 billion was allocated for the eventuality of further fighting. The attempt has not really succeeded however. The government has used the defense “box” as petty cash to fill holes in the budget, and it has mostly run out. Out of NIS 10 billion, NIS 3 billion remain.
It Is not unlikely that the Ministry of Defense will ask for cash from this box to finance renewed operations in the Gaza Strip. After all, if the government withdrew money from it even before the resumption of fighting, then why not in the scenario for which the money set aside was really intended?
That will be the opening position in the expected negotiations between the Ministry of Defense and the Ministry of Finance. The Ministry of Finance will try to explain that the huge defense budget that was approved – more than 70% higher than the budget before the war – can cope with an event of a few hundreds of millions of shekels, and even beyond that. If not, the first preference will be to use what is left in the “box”, to avoid having to open up the budget completely.
But if the renewed campaign lasts for months, even NIS 3 billion will not be enough. The heavy costs will mainly arise from drafting reservists, although the army may well also ask for supplements for replenishment of armaments beyond what is provided for in the budget.
Minister of Finance Bezalel Smotrich said in an interview with “Globes” in March that he had taken care to leave further reserves in the budget besides the “box”, but if even that buffer is used up by full-scale war in the Gaza Strip, there will be no avoiding reopening the budget.
The result will be one of two things, or a combination of both. The first is a further increase in taxation beyond the already heavy burden in the 2025 budget. The second is a widening of the fiscal deficit in a way that will increase Israel’s debt servicing expenditure for years to come, during a security flare-up, which will raise the country’s risk premium even more, with the fear of further downgrades of its credit rating.
A further across-the-board cut in civilian spending, on health, education and welfare, will also be on the cards.
Delays to NIS 3 billion benefits package
In the face of the continued burden placed on the reserve forces, the government is taking its time over approving a package of new benefits for those who serve.
Two months ago, Smotrich and Minister of Defense Israel Katz presented a package of benefits worth NIS 3 billion that included income tax credit points for reservists on active duty, grants for reservists’ employers, and a digital wallet for reservists.
Despite the pompous declarations by politicians about “a historic revolution in the status of the reservists”, the important decision has yet to be raised for approval in the government.
The Ministry of Finance stated in response: “For now, the budget represents a solution. To the extent that adjustments will be needed later on, the matter will be discussed by the government.”
Published by Globes, Israel business news – en.globes.co.il – on May 5, 2025.
© Copyright of Globes Publisher Itonut (1983) Ltd., 2025.
