Knesset approves 2026 state budget in final votes, avoids early elections

The state budget was passed by a 62-55 vote after a full day of debates in the plenum, which began in the morning and continued until the night.

If the budget had not been approved, the Knesset would have automatically dissolved, and elections would have been called. By law, the budget must be approved by the end of March, when the fiscal year closes.

The budget approved includes an expenditure cap of about NIS 699 billion.

The budget authorizes government spending of about NIS 850.59b. for the fiscal year 2026. It includes a regular budget of about NIS 621.75b. and a development and capital budget of NIS 228.83b.

The budget for conditional expenditures is NIS 77.27b. The budget for authorized commitments is about NIS 196b.

The opposition mistakenly voted in favor of amendments to allocate hundreds of millions of extra shekels to haredi institutions. The vote followed a last-minute maneuver by the coalition in the Knesset plenum late Sunday night.

The coalition amendments added an estimated NIS 800 million to haredi institutions. One of the amendments was passed with a rare majority of 109 lawmakers.

Finance Ministry Director-General Ilan Rom resigned from his position after the state budget was approved.

During the state budget’s first reading in the Knesset in January, haredi parties Shas and United Torah Judaism had threatened to vote against it if they did not receive various concessions, primarily relating to the controversial haredi draft law that was being advanced.

This caused a crisis within Prime Minister Benjamin Netanyahu’s coalition until agreements were reached, and the budget ultimately passed its first reading.

The haredi parties were expected to vote in favor of the budget despite past threats to vote against it in its first reading.

When Operation Roaring Lion began, Netanyahu said the haredi draft bill had been “set aside” and would not be advanced during the war to maintain unity.

Controversial reforms that were part of the budget bill were also removed to maintain unity.  They included Finance Minister Bezalel Smotrich’s sweeping reform of the dairy sector.

Due to war-related expenses, an updated version of the state budget passed its first reading in the Knesset plenum two weeks ago, following its initial approval in January.

To help finance the war, a 3% across-the-board cut was applied to the budgets of all government ministries, the Finance Ministry said.

The updated budget includes nearly NIS 6b. in coalition funds for 2026, with hundreds of millions of shekels directed to haredi institutions as part of the proposal. Millions of shekels were also allocated for settlements in Judea and Samaria.

Smotrich praised the budget outline during a press conference in the Knesset on Sunday evening ahead of the vote.

“For the fourth time since I became finance minister, we are bringing the 2026 state budget for approval tonight,” he said. “This is the first time since 1999 that a government has passed a budget in an election year and during a war.

“We are fully aware of the economic challenges of the past two and a half years, especially the current campaign against Iran. We are acting responsibly. War has high costs, and we are managing them carefully.”

The budget would lower the cost of living, Smotrich said.

“We expanded income-tax brackets for the middle class, equivalent to up to NIS 10,000 per year in tax relief for working families,” he said. “Combat reservists are now eligible for up to four tax-credit points, worth up to NIS 12,000 per year. We also granted tax exemptions for olim [new immigrants] arriving during the war.”

The budget also would increase competition in banking, Smotrich said.

“We are now returning money to the public through a special tax on banks,” he said. “We are also advancing structural reforms to open the banking sector to competition.”