This coming Thursday, Finance Minister Bezalel Smotrich is expected to meet with Prime Minister Benjamin Netanyahu to present the key principles of the 2026 state budget that he intends to promote.
According to the plan being formulated by the Finance Ministry, next year’s budget will mark a transition from a period of emergency to routine - and from war to growth - against the backdrop of the end of the fighting in Gaza and security achievements in other arenas.
The ministry plans to grant the defense establishment a broader budgetary framework than that allocated prior to the war.
The fiscal concept Smotrich will present to the Prime Minister emphasizes the need for greater efficiency within the defense system and for budgetary convergence, in order to free up resources for the public in the areas of education, health, infrastructure, and other key sectors.
Smotrich is expected to argue that the Israeli public has borne a heavy burden during recent years of conflict, including through the one-percent VAT increase enacted to finance defense spending. Now, he says, it is time to ease the tax burden and promote economic growth.
The Finance Ministry has not yet decided on the exact nature of the relief - whether it will involve reducing VAT back to 17%, lowering income tax, or adjusting tax brackets.
According to estimates, Smotrich is inclined to favor changes in income tax as a means of incentivizing participation in the labor market and easing the burden on working citizens.
Due to the tight schedule, it is possible that the state budget will not be approved by the end of the calendar year, which could result in a continuing budget in early 2026.
The Finance Ministry emphasizes that preparations are being made for such a scenario, while simultaneously accelerating the advancement of the budget plan for government and Knesset approval.