Israeli Finance officials warn renewed Gaza war could impact economy with costs over $4.1 billion

Israeli Finance Ministry officials have expressed concerns that the renewed IDF military operations against Hamas terrorists in Gaza could cost the economy an additional 15.4 billion shekels ($US 4.1 billion).

If realized, such a dramatic increase in military spending could potentially undermine the Jewish state’s budget stability. 

“The government isn’t discussing the financial toll, only the goals of the operation and the elusive defeat of Hamas, which has not been achieved in 19 months,” an unnamed Finance Ministry official told the news outlet Ynet.

“The cost of mobilizing tens of thousands of reservists for extended periods will be enormous, and will inevitably hurt economic growth,” the official warned. 

The Finance Ministry has argued that extended military operations could require new taxes on Israeli citizens as well as significant cuts in public services. In addition, it could also require cuts across various ministries in order to finance the ongoing war. Officials have warned that Israel’s budget deficit could expand from 4.9% to 5.1% or possibly even higher. 

The Israeli cabinet voted on Sunday to expand the military offensive against Hamas in Gaza. Furthermore, the cabinet also advocates military control of the Gaza Strip until Hamas is defeated, a move that would likely require a significant increase in the number of IDF troops operating in the coastal enclave. 

The ongoing Gaza war, which has so far lasted for 19 months, is already the longest and most expensive war in modern Israeli history. In June 2024, Bank of Israel Governor Amir Yaron estimated that the multi-front war could cost the Jewish state a whopping $67 billion in military and civilian costs during the period between 2023 and 2025. This amount excludes the recently approved expanded military operations in Gaza. 

Furthermore, there are concerns that a protracted military offensive could lead to additional credit rating downgrades. The renewed military offensive will require the call-up of tens of thousands of Israeli reservists. Such move would have a negative impact on the labor market and the educational system. IDF reservists also contribute disproportionally to the Israeli tech sector, which constitutes the growth engine in the Israeli economy. 

Vladimir Beliak, a lawmaker from the centrist opposition party Yesh Atid who serves as the Opposition Finance Committee leader, blasted the Netanyahu government’s decision to increase IDF reservist mobilization. 

“The $1.1 billion security cushion has already been depleted,” Beliak argued. “This isn’t just about direct costs – it will also drag down economic growth. About 20% of the reservists are employed in the high-tech sector, the main engine of Israel’s economy. That will lead to a sharp drop in state revenue later this year,” he warned. 

Beliak also argued that the government’s policy would undermine the healthcare and education sectors in the country. 

“Education, welfare, healthcare, and infrastructure will once again take the hit.” 

Beliak also accused Finance Minister Bezalel Smotrich of advocating “endless war and military rule in Gaza at a cost of tens of billions a year.” 

“The Finance Minister and the government are repeatedly collapsing the state budget, damaging Israel’s economic reputation and harming its citizens’ quality of life. This recklessness must stop,” he concluded. 

A new Stockholm International Peace Research Institute (SIPRI) report reveals that military and defense spending has increased globally in the past year. 

“Over 100 countries around the world raised their military spending in 2024. As governments increasingly prioritize military security, often at the expense of other budget areas, the economic and social trade-offs could have significant effects on societies for years to come,” the SIPRI researcher Xiao Liang stated. 

The report noted that Israel’s military expenses reached $46.5 billion in 2024. This constitutes a 65% increase and the largest military spending increase since the Six Day War in 1967. Israel’s current military expenses currently constitute 8.8% of the country’s Gross Domestic Product (GDP), which is reportedly the second highest ratio in the world.