The Knesset passed the state budget at second and third readings last night by a majority of 62 to 55. There was unusual drama in the course of the debate when the coalition sprang a surprise addition of hundreds of millions of shekels for the haredi education system.

The money was earmarked for haredi schools, but remained in the budget reserves at the behest of the Attorney General. The way in which the government passed the allocation circumvents the Attorney General’s objections.

The drama was lay not just in the substance of the move, but also in the way in which it was carried out. Amendments to the budget are generally raised by the opposition, but in this case the coalition proposed an amendment, causing confusion among opposition members, who mistakenly voted in favor of it.

The result is an additional NIS 800 million for the Chinuch Atzmai school network of the United Torah Judaism party and the Shas party’s Maayan HaChinuch HaTorani network. The money is a form of compensation to the haredi (ultra-Orthodox Jewish) parties for the government’s failure to pass a law regularizing exemption from military service for yeshiva students. The haredi parties had threatened to vote against the budget if the law was not passed, which would have led to the downfall of the government and the dissolution of the Knesset.

The budget passed last night amounts to NIS 699 billion, and is the largest in Israel’s history. It is devoid of any substantial structural reforms, but it contains one benefit for middle-income households through expansion of the income tax brackets.

The most prominent item is the NIS 143 billion defense budget, which has swollen considerably because of the war with Iran.

The fiscal deficit target has been raised significantly, to 4.9% of GDP. According to the Bank of Israel, the budget will probably result in a rise in Israel’s debt:GDP ratio from 68.5% last year to 70% this year. Before the outbreak of war two and a half years ago, the ratio was 60%.

Published by Globes, Israel business news - en.globes.co.il - on March 30, 2026.

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