A 30% Increase in Defense Spending: Where Are the Billions Going in the 'Swords of Iron' War?

The "Swords of Iron" war significantly impacted the state budget in 2023, leading to substantial changes in the budget planning for 2024. Below is a comprehensive review of the economic and budgetary implications of the war, based on data from the annual financial report of the State of Israel for 2023.

The year 2023 began without an approved budget framework, with government ministries operating under a continuous budget for the first five months. In May, an original budget of approximately 484.8 billion NIS was approved, an increase of about 4.8% compared to the 2022 budget. Due to the outbreak of the war, an updated budget of approximately 510.7 billion NIS was approved in December 2023.

The actual budget execution amounted to approximately 516.0 billion NIS, an increase of about 12.5% compared to 2022. Of this, approximately 356.0 billion NIS was allocated to civil ministries, and about 98.1 billion NIS to defense expenditures, which grew by about 30% compared to the previous year.

The war’s impact on the budget

 The total government expenditure due to the "Swords of Iron" war for 2023 alone amounted to approximately 29.6 billion NIS. Of this amount, approximately 18.2 billion NIS was allocated to defense expenditures, including direct military expenses, security agencies, and internal security bodies.

Government actions included the mobilization of reserves, procurement of war equipment, evacuation of settlements, addressing emergency supplies and equipment, supporting local authorities on the front line, supporting educational institutions, preparing the health system for emergencies and routine, establishing a rehabilitation directorate, and supporting the business sector. Additionally, specific programs were formulated to support affected areas.

Advances to defense suppliers 

Advances to suppliers include a total of approximately 23,862 million NIS (compared to approximately 13,706 million NIS as of December 31, 2022) for advances from the Ministry of Defense to suppliers according to their contractual terms.

Deficit and forecast

 The budget deficit in 2023 amounted to approximately 4.1% of GDP (77.1 billion NIS), compared to a planned deficit of 0.9% in the original budget.

Budget for 2024 On March 13, 2024, the Knesset approved the updated state budget for 2024, called the "Supplementary Law Budget". The updated budget stands at approximately 584 billion NIS, reflecting an increase of about 70 billion NIS compared to the original budget approved in May 2023.

The main points of the updated budget include a significant addition to the defense budget for combat expenses reimbursement and military buildup, a "Reserve Recruitment" program amounting to 9 billion NIS, settlement fortification and security components, extensive support for the mental health system, funding for the "Rehabilitation" directorate for the restoration of the envelope, evacuation of settlements, and support for accelerating the high-tech and real estate sectors.

The planned deficit in the 2024 budget stands at approximately 129 billion NIS, reflecting a deficit of about 6.6% of GDP, compared to a planned deficit of about 15 billion NIS (about 0.8% of GDP) in the original budget approved in May 2023.

In conclusion, the "Swords of Iron" war led to substantial changes in the state budget, with an emphasis on increased defense expenditures and support for affected areas. The challenge facing the government is to continue responsible budget management while dealing with the ongoing consequences of the war on the Israeli economy, especially in light of the significant increase in the planned deficit for 2024.