What's Happening?
Israel has spent approximately NIS 231 billion ($75.7 billion) on the war between 2023 and 2025, according to the Accountant General's financial reports. This figure excludes expenditures for 2026 and lost tax revenue. War-related expenses are categorized
into defense spending (NIS 166 billion or $54.4 billion), compensation (NIS 27.3 billion or $9 billion), and rehabilitation and other civilian expenses (NIS 37.9 billion or $12.4 billion). The defense budget surged from NIS 75 billion ($24.6 billion) in 2022 to NIS 166 billion ($54.4 billion) in 2025, now hovering around 8% of GDP, compared to 4.3% before the war. Key components of this increase include the IDF wage bill, which rose from NIS 31 billion ($10.2 billion) in 2023 to NIS 36.5 billion ($12 billion) in 2025, and reservist pay, which jumped from NIS 8.7 billion ($2.9 billion) in 2023 to NIS 32 billion ($10.5 billion) in 2025. Spending on reserve duty is projected to remain significantly higher than pre-war levels for the coming decade. Additionally, disability benefits for victims of hostilities have seen a ninefold increase, reaching NIS 1.7 billion ($557 million) today, up from approximately NIS 200 million ($66 million) annually before October 7.
Why It's Important?
The substantial financial outlay for the war, totaling $75.7 billion through 2025, represents a significant and enduring burden on Israel's national budget and economy. The doubling of the defense budget as a percentage of GDP indicates a fundamental shift in national priorities and resource allocation, diverting funds that could otherwise be used for social programs, infrastructure, or economic development. The projected long-term increases in IDF wages, reservist pay, and disability benefits for veterans and victims of hostilities signify that these elevated costs are not temporary but will persist for years, if not decades. This sustained financial pressure could lead to difficult fiscal choices, potentially impacting public services, taxation, and overall economic stability. The depletion of the Compensation Fund and concerns about the Property Tax Fund highlight the need for alternative funding sources, underscoring the profound and lasting economic consequences of prolonged conflict.
What's Next?
Israel will need to adjust to significantly larger defense budgets for the foreseeable future, with the defense establishment seeking a 2027 budget starting at NIS 117 billion ($38.4 billion). The government faces the challenge of identifying alternative funding sources as the Compensation Fund nears depletion, potentially before the 2027 budget. Compensation payments are expected to continue into 2027 as some claims remain unresolved. The Tkuma Directorate, responsible for rehabilitating communities, has a budget of NIS 17.5 billion ($5.7 billion) through 2028, with only a portion utilized so far. The Tnufa Directorate for rehabilitating the North also has a significant allocation. These ongoing rehabilitation efforts, coupled with the persistent costs of defense and social support, will necessitate careful fiscal planning and potentially new economic policies to manage the long-term financial implications of the conflict. The increased spending on reserve duty over the next decade will also require sustained budgetary commitments.
Beyond the Headlines
Beyond the immediate financial figures, the war's costs reveal a deeper societal impact, particularly the human toll. The ninefold surge in disability benefits for victims of hostilities, with a significant portion related to psychological trauma, indicates a looming public health crisis that will require extensive and long-term support. The fact that 90% of casualties suffered psychological trauma suggests that the true cost of the war extends far beyond monetary figures, encompassing the mental and emotional well-being of a large segment of the population. The need for increased support for IDF disabled veterans and bereaved families will create a lasting social obligation. This situation underscores how prolonged conflict not only strains national finances but also fundamentally reshapes the social fabric, creating generations of individuals who will require ongoing care and support, thereby influencing national identity and public policy for decades to come.
