Nagel Committee Proposes Major Defense Budget Increase: NIS 9-15 Billion Annually to Strengthen Military Capacity

The Committee to Examine the Defense Budget and Force Building (Nagel Committee) has presented its long-awaited recommendations to Prime Minister Benjamin Netanyahu, Defense Minister Israel Katz, and Finance Minister Bezalel Smotrich. The committee’s proposal calls for an increase in the defense budget by NIS 9 to 15 billion per year, amounting to a total of NIS 133 billion over the next decade. This increase would add NIS 6 billion to the Defense Ministry’s 2025 budget, pushing the national deficit to approximately 4.7% of GDP, up from the originally planned 4.4%.

A significant portion of the proposed budget increase is earmarked for strengthening military capabilities, procurement, and defense needs. However, the committee highlights that roughly NIS 6 billion annually should address critical manpower issues, including enhancing permanent service conditions and increasing the military salary scale. The committee's report emphasizes that these budgetary increases are not designed to address the immediate rehabilitation needs of wounded and fallen soldiers from the October 7 war, which will require additional funding in the years ahead.

While the full report remains classified, a public version is expected to be released soon. According to the committee, the budgetary increases are necessary to address gaps in force building, readiness, human capital, air defense, border defense, and other critical areas. The committee emphasizes that "the October 7 disaster did not occur due to a lack of budget, nor because of the size of the army." However, it acknowledges that the prolonged war highlighted new needs and gaps, particularly in manpower and defense readiness.

Avoiding Tax Hikes, but Funding Remains Unclear
Although the committee was tasked with suggesting potential sources to finance the proposed budget increase, it notably avoided offering specific details on how the funds should be sourced. The committee firmly opposes raising taxes to fund the defense budget increase, despite recognizing that the government's fiscal challenges will need to be addressed. Instead, it recommends financing part of the 2025 budget increase from reserves, with the remainder funded by projected economic growth and unspecified alternative sources.

With Israel already facing financial strain, including the recent VAT hike and other revenue-generating measures, the committee’s recommendation has raised concerns about the feasibility of maintaining fiscal discipline without clear sources of funding. The proposed VAT increase to 18% is expected to generate about NIS 7.2 billion, far less than the NIS 15 billion expected for the 2026 budget increase.

Manpower Crisis and the 'People’s Army' Model
The committee highlights the state of Israel's military manpower crisis as a critical issue that requires urgent attention, suggesting that without swift reforms, Israel’s military capacity could face irreparable damage. "We are close to the '90th minute' and the point of no return," the report warns, stressing the need to address challenges in conscription, permanent service, and the reserve system.

The report advocates for the continuation of Israel's "People's Army" model, recommending gradual changes to mandatory military service that would eventually extend compulsory service to all citizens. Although the committee stops short of recommending specific recruitment targets for populations such as Haredim, Arabs, or religious women, the overall message calls for a more inclusive approach to military service. The committee also proposes that the IDF extend regular service to 36 months, a measure the IDF has sought since the onset of the October 7 war.

In addition to these reforms, the committee recommends creating "short-term frameworks" that would allow for more flexible, cost-effective military staffing, including positions for soldiers who would serve for approximately two years instead of the traditional reserve model. These frameworks are expected to reduce the burden on the reserve system and allow for more efficient use of resources.

Iran Threat Central to Defense Strategy
The Iranian nuclear threat is identified as the primary security challenge for Israel, with the committee recommending that Israel take all necessary steps to counter it, "at any cost and in any way, direct or indirect." Chairman Nagel stated that much of the proposed budget increase is designed to address this existential threat and strengthen Israel's ability to respond to regional instability, including potential threats from Iran and its proxies.

The committee's assessment suggests that Iran’s strategic objective is the "conventional destruction of Israel," a threat that is only exacerbated by the nuclear ambitions of Tehran. The report notes that the political and operational conditions have not yet aligned to fully neutralize the Iranian nuclear threat, but that steps to slow down its progress have been taken in recent years.

Criticism and Political Sensitivity
The Nagel Committee’s recommendations have not been without controversy. Some critics, including senior officials in the Ministry of Defense and Ministry of Finance, have expressed concerns that the committee's avoidance of addressing the actual funding sources makes the proposals difficult to implement. Additionally, the committee’s proposed funding increase, while lower than the defense establishment's initial request, is still seen by some as insufficient to meet Israel's growing security challenges.

The report also raises political sensitivities, particularly regarding the issue of manpower, with calls for more inclusive recruitment potentially complicating political negotiations. Despite these challenges, the committee's conclusions are seen as a critical step in addressing Israel's defense needs in the face of evolving threats.

As the government now begins to assess the committee's recommendations, the debate over how to balance fiscal responsibility with national security priorities is expected to intensify in the coming months.

Key Recommendations from the Nagel Committee:

• Increase Defense Budget: Between NIS 9 and 15 billion annually, totaling NIS 133 billion over the next decade.
• Focus on Human Capital: Major investments in military manpower, including improving conditions for permanent personnel and increasing military salaries.
• Extend Regular Service: 36 months of compulsory service, in line with IDF recommendations since the outbreak of the October 7 war.
• Reforms in the Reserve System: Introduction of "short-term frameworks" to reduce the burden on reserves.
• Countering Iranian Threat: Increased funding for technologies and strategies to deal with Iran's nuclear ambitions and regional proxies.
• Maintain Debt-to-GDP Ratio: Recommendations to avoid new taxes, with funding sourced from reserves, economic growth, and unspecified other sources.

As Israel faces both internal fiscal pressures and external security threats, the path forward for the defense budget remains uncertain, and key decisions lie ahead regarding funding and military strategy.