By Steven Scheer
JERUSALEM (Reuters) -Israel's cabinet is expected to vote on the long-delayed 2026 state budget next month, Finance Minister Bezalel Smotrich said on Tuesday, but its approval faces an uphill political battle that could ultimately lead to new elections.
According to Israeli law, the budget must be approved by parliament by the end of March or new elections are triggered.
Budget disputes in past coalition governments led by Prime Minister Benjamin have played a role in bringing about
early elections. His present coalition of right-wing and religious parties has been in power since 2022, with the next election due in October 2026.
But the government has splintered in the past two years over the Gaza war, the ceasefire which has halted it and demands by ultra-Orthodox Jewish parties to exempt Jewish seminary students from mandatory military service.
Nonetheless, Smotrich said the government will manage to approve the budget, which he said should be left out of political squabbling.
"I am convinced we have to pass the budget and I am convinced the prime minister is convinced too and is determined to do so," Smotrich said at a news conference to unveil the government's economic plan for next year.
Finance Ministry officials said there is a gap of 40 billion shekels ($12.1 billion) between the 2025 budget and funding demands by ministries for 2026.
Netanyahu has said little on the prospect of an election being brought forward. Polls have consistently shown he would lose.
With a 2026 budget not expected to be approved by January 1, a prorated 2025 budget will be used and 1/12 allocated each month until a new budget is passed - a situation Smotrich said he was fine with for a few months.
"We can't hold the economy and country hostage - the military the citizens," Smotrich said.
Smotrich and other ministry officials criticized the Defence Ministry for steep spending demands to finance the Gaza war, which has already cost more than 250 billion shekels and tens of billions more in compensation for reservists and damage claims.
The Finance Ministry's director general, Ilan Rom, said military spending has been excessive.
The ministry trimmed its 2025 economic growth estimate to 2.8% while expecting 5.2% growth in 2026. It projects a budget deficit of 3.2% of GDP next year.
While the actual budget figures were not yet ready, with a cabinet vote set for Dec. 4, Smotrich said he would cut income taxes but impose a tax on banks for reaping high profits and paying low interest on deposit accounts.
He also aims to abolish the VAT exemption for foreign tourists on services such as hotels and car rentals.
($1 = 3.3045 shekels)
(Reporting by Steven Scheer, Writing by Ahmed ElimamEditing by Peter Graff)
