A growing budget battle between Israel’s Finance Ministry and Defense Ministry could result in a sharp tax increase for Israeli consumers, with Treasury officials warning that the country’s VAT rate could rise from 18% to 22.5% if the Defense Ministry’s request for an additional 30 billion shekels is approved.

According to reports, the Defense Ministry is seeking a total 2026 budget of 188 billion shekels, significantly above the 144 billion shekels already approved in the state budget. The Finance Ministry has already agreed to provide an additional 15 billion shekels but says approving the full request would require either substantial tax hikes or deep spending cuts.

Defense officials say the additional funding is necessary to maintain the IDF’s expanded operations and continued large-scale troop deployments in Gaza, Lebanon, and Syria.

Treasury officials argue that increasing the VAT by 4.5 percentage points would immediately raise the cost of goods and services across Israel, further worsening the country’s cost-of-living crisis and reducing consumers’ purchasing power. They also criticized the Defense Ministry for seeking another major budget increase without presenting sufficient efficiency measures, noting that defense spending has already risen dramatically since the start of the war.

While emphasizing that they fully support funding Israel’s security needs, Finance Ministry officials warned that significantly expanding government spending could have lasting consequences for the Israeli economy. The dispute is now expected to be decided by Prime Minister Netanyahu and the cabinet, with the outcome likely to affect both the state’s finances and Israeli taxpayers.

(YWN World Headquarters – NYC)