Knesset Approves 2026 State Budget on First Reading Amid Coalition Rift Over Draft Exemptions

The Knesset approved the 2026 state budget on its first reading late Wednesday night, with 62 lawmakers voting in favor and 55 against. Shas and Degel Hatorah supported the proposal, while Agudat Yisrael opposed it. Shas Chairman Aryeh Deri was absent from the vote.

Following the budget’s approval, the Knesset also passed in its first reading an amendment to the Deficit Reduction and Budgetary Expenditure Limitation Law, by the same margin. The amendment raises both the deficit ceiling and the government spending cap.

deficit ceiling set at 3.9% of GDP

Under the proposal, total government expenditure in 2026 will amount to 811.74 billion shekels, with the deficit ceiling set at 3.9% of GDP. The Defense Ministry budget will stand at approximately 112 billion shekels, and more than 3 billion shekels will be allocated to a national program promoting artificial intelligence and its implementation across government ministries.

The Finance Ministry said the budget is intended to return the Israeli economy “to a path of growth and budgetary responsibility, after two years of war budgets in which the economy supported the national security effort.”

Opposition leaders strongly criticized

Opposition leaders strongly criticized the vote. Yair Lapid said the budget “sends a message to Israel’s working public: you are suckers,” accusing the government of adding 970 million shekels to ultra-Orthodox education while cutting early childhood education funding. He also cited an additional 100 million shekels allocated to the Ministry of Jerusalem Affairs, alongside a 108 million shekel cut to urban road construction.

Yisrael Beiteinu chairman Avigdor Lieberman said the budget was “100% for draft evaders and 0% for those who serve,” arguing that coalition funds were prioritized over military preparedness, including for a potential confrontation with Iran.

The vote came amid deep divisions within the ultra-Orthodox parties over legislation regulating the military draft exemptions for yeshiva students. Earlier Wednesday, the rabbis of Degel Hatorah instructed their Knesset faction to support the budget, despite United Torah Judaism partner Agudat Yisrael opposing it. Agudat Yisrael chairman Yitzhak Goldknopf said his faction could not support a government that “puts young men behind bars,” but added that he does not intend to bring down the coalition.

 The draft exemption law needs to be passed

The decision followed a meeting involving Knesset Foreign Affairs and Defense Committee Chairman Boaz Bismuth, the committee’s legal adviser Miri Frankel-Shor, and several ultra-Orthodox lawmakers. According to a Degel Hatorah source, legal advisers demanded that the draft exemption law be passed as a temporary order and that its stated purpose be revised — changes the source said could lead to the law’s immediate invalidation, given a prior High Court ruling rejecting such an approach.

Lapid criticized the discussions taking place outside the formal committee framework, accusing ultra-Orthodox representatives of exerting pressure on legal advisers. “This is a trade-off for Israel’s security, encouraged by Netanyahu,” he said.

Ultra-Orthodox parties have repeatedly warned they will not support the state budget unless legislation regulating draft exemptions is approved. In recent weeks, Degel Hatorah chairman Moshe Gafni, Shas representatives, and Goldknopf himself have all issued similar ultimatums, demanding the law’s passage through its final readings.