Israeli gov't sets aside IDF draft reform to pass state budget with more security expenses before looming deadline

The controversial IDF draft law will be set aside for the moment, allowing the 2026 state budget to pass as fast as possible amid broad cuts to all ministries in favor of the defense ministry, Israeli Prime Minister Benjamin Netanyahu and Finance Minister Bezalel Smotrich announced in a recorded video message on Tuesday.

They are working to pass the state budget before the deadline at the end of the month, they added. Failure to pass the budget would cause an automatic dissolution of the Knesset, forcing new elections. 

The government held a video conference discussion on Tuesday night to approve budget changes.

Netanyahu ordered that the defense budget be increased significantly due to the Iran war, amounting to NIS 28 billion ($9 billion) of the state budget, plus an extra “container” of about NIS 10 billion ($3.2 billion) to be kept aside for unforeseen security scenarios. 

In the video statement, Netanyahu said, "We are in a campaign with a cruel enemy who wants to destroy us.” 

“We crushed his nuclear and ballistic capabilities in Operation Rising Lion, then, instead of learning the lesson, he tried to redevelop them and bury them underground – deep underground, in such a way that we could no longer harm them,” he continued. "Therefore, there was no question at all – we had to go into this campaign, and we are working even harder with our heroic soldiers and pilots.” 

Pivoting to the budget, Netanyahu said the war “costs money, a lot of money.” 

“Therefore, we are required to provide a special budget during the war with tens of billions of shekels to help the defense budget, the war effort,” Netanyahu continued. “I am glad that the Minister of Finance has committed to this important task.” 

Smotrich said that, along with the additional defense outlay, the coalition would remove certain laws and reforms, which were unlikely to pass in the current political climate. 

"We are now convening for an immediate transfer of the state budget, with the centerpiece of which being the transfer of the required addition to the defense budget to finance the war,” Smotrich stated. “As the prime minister noted, this involves tens of billions of shekels. This is not an expense, this is an investment.” 

Smotrich said the decision to set aside “controversial issues” was due to the war situation, stressing that “War is a time for unity.” 

“We are putting aside the conscription law, which will not be advanced now, and along with it, a number of reforms around which we have not yet reached broad agreement."

One of the reforms being pulled from the budget is Smotrich's controversial dairy reform, which would have seen tariffs on dairy imports abolished, while the government-established milk production rates would be reduced. The moves are intended to lower the cost of milk and dairy products, while forcing dairy farmers to compete with international dairy producers. 

The dairy industry in Israel is still run in a command economy system, in which the government regulates the production of milk, butter, cream, and certain cheeses. 

“We wanted to bring more good news to the citizens of Israel with this budget, with an emphasis on the struggle against the cost of living,” Smotrich said. “But the responsibility resting on our shoulders requires us to focus on passing the budget immediately for the security of the state and the welfare of its residents.” 

However, the biggest announcement was the decision to remove the military conscription law from the budget. The three major ultra-Orthodox parties all exited the government over the failure to pass a draft law which provides significant exemptions for Haredi yeshiva students. 

In the hours before Netanyahu and Smotrich released their video statement, the government authorized over NIS 5 billion in discretionary funding for ultra-Orthodox institutions, Jewish settlements in Judea and Samaria, and other coalition priorities, in an apparent attempt to convince the Haredi parties to support the budget. 

This discretionary funding was kept in place despite the professional staff of the Finance Ministry recommending it be cut by at least half, Hebrew media reported. 

While opposition parties condemned the discretionary funding, they cheered the removal of the draft law from the budget, claiming it allowed too many exemptions for Haredi students. 

Opposition leader Yair Lapid, of Yesh Atid, praised the removal of the draft law in a post on 𝕏. 

“For many months, we thwarted every possibility of advancing the law in the Knesset,” Lapid wrote. “Tonight, Netanyahu and Smotrich admitted what we have long said: the despicable law has failed.” 

Former Prime Minister Naftali Bennett also took to social media to hail the development: “We won; we won big,” Bennett wrote on his 𝕏 account. 

“People of Israel: one. The Netanyahu government and the Haredim: zero,” he added. 

While recent polls have shown that two of the three Haredi parties are likely to vote for the budget despite the removal of the draft law, Degel HaTorah Chairman Moshe Gafni recently told Yedioth Ahronoth that if the conscription law is not passed, his party will not vote for the budget. 

If the draft law is not passed, he said, “We will go to elections.”