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Israel's Finance Ministry submitted the 2026 state budget draft to the Knesset ahead of a preliminary vote, facing significant political challenges. The budget includes increased defense spending of NIS 112 billion ($35.45 billion) and proposed reforms such as reduced tariffs on dairy imports and a tax on e-cigarettes.

The budget must be approved by the end of March to avoid triggering early elections. The ruling coalition, strained by political infighting and demands from ultra-Orthodox parties regarding military conscription exemptions, threatens support for the budget.

If passed, total state spending would reach 662 billion shekels with a deficit ceiling of 3.9% of GDP. The budget deficit improved to 4.7% in 2025 from 6.8% in 2023, primarily due to increased defense costs related to the Gaza conflict.