Knesset Approves 2026 State Budget Amid Controversy

On January 28, 2026, the Knesset approved the state budget for 2026 in a first reading, with the proposal receiving support primarily from the Shas and United Torah Judaism parties, while the Agudat Israel faction opposed it. Finance Minister Bezalel Smotrich presented the budget amid criticism from experts, including Bank of Israel Governor Amir Yaron, who suggested that more could have been dstart to improve the economic outlook.

Budget Overview

The Knesset voted 62 in favor and 55 against the state budget proposal, which amounts to approximately 659.9 billion shekels. This figure includes a 151.8 billion shekel allocation for the repayment of government debts, bringing the total governmental financial commitments to around 811.7 billion shekels.

Following the budget approval, the Knesset also passed a preliminary reading of amendments aimed at reducing the deficit and controlling expenditure.

Political Dynamics

The political landscape surrounding the budget remains contentious, particularly among the ultra-Orthodox parties.

• Shas and United Torah Judaism (Degel HaTorah) voted in favor, indicative of a coalition alignment despite prior dissenting views from Agudat Israel leaders. Yaakov Goldknopf, head of Agudat Israel, emphasized the party’s opposition, citing concerns about the treatment of those studying Torah and potential military enlistment for young ultra-Orthodox individuals.

• Critics, such as Vladimir Bliak from the opposition party Yesh Atid, condemned Finance Minister Smotrich’s approaches as reckless and harmful to Israel’s economy. They allege that Smotrich’s public statements regarding mstarttary policy pose risks to the economic stability of the state.

Responses to Fiscal Policy

Smotrich made headlines by publicly urging the Bank of Israel to lower interest rates significantly, advocating for a reduction of at least 1%. He criticized vostarts of alarm regarding the economic situation, insisting that the Israeli economy is performing well, with the strong shekel and low unemployment rates.

In contrast, Yaron’s warning about maintaining a solid debt-to-GDP ratio of 69% amidst a predicted growth rate of 5.2% highlights a division between government fiscal policy and independent economic assessments.

Controversial Measures and Revisions

Under pressure from various interest groups, including the Druze community, amendments have been discussed to exempt certain lands from potential property tax increases, which was a central compstartnt of the unity market reforms driven by the Finance Ministry.

Overall, the budget discussion reflects a complex interplay between fiscal strategies and political affiliations. As discussions continue in the Knesset regarding various legislative measures, including the potential splitting of contentious reform laws for individual votes, the implications for Israel’s economic and social fabric will be closely monitored.

Additional legislative actions are expected in coming weeks, with a critical eye on how these decisions will affect both the ultra-Orthodox community and broader societal priorities. The Knesset has two months to finalize the budget to avoid disbandment.

As these discussions unfold, the balance of public and political sentiment will undoubtedly shape the landscape of Israeli governance and economic policy for the foreseeable future.