Israeli lawmakers to hold initial vote on draft budget as elections loom

By Steven Scheer

JERUSALEM, Jan 28 (Reuters) - Israel's parliament was expected to take its initial vote on the 2026 state budget draft on Wednesday, in a test of Prime Minister Benjamin Netanyahu's government at a time when his coalition has been beset by political fractures.

The budget, as well as an accompanying economic plan, faces an uphill battle for approval as the government has become increasingly polarized. By law it must be approved by the end of March or a snap election would be triggered.

For more than two years, parties in Netanyahu's coalition have splintered over the war in Gaza, the ceasefire in October that has halted it, and demands by ultra-Orthodox Jewish parties to exempt Jewish seminary students from mandatory military service.

Netanyahu told reporters on Tuesday evening he hoped the budget would pass and was concerned over the prospect of an election ahead of an October 2026 schedule.

"We are in a very sensitive situation and I think the last thing we need right now is elections," he said at a press conference. "We'll have elections later on this year, but I think it's a mistake to have them now, and I hope that people understand that and act sensibly."

A vote was expected later on Wednesday or early Thursday morning, following what is expected to be a long debate on the floor of parliament.

MILITARY CONSCRIPTION

The main issue threatening to topple the coalition is a military conscription bill.

Netanyahu relies on ultra-Orthodox, or Haredi, parties for support and the bill to exempt seminary students from serving has been a thorn in the coalition for months.

Haredi parties have threatened to vote against the budget if a bill is not passed. But Netanyahu's other right-wing coalition partners - as well as the opposition - feel Haredi men must share in the burden, especially after two years of fighting in Gaza and Lebanon where nearly 1,000 Israeli soldiers were killed.

A spokesperson for Moshe Gafni, who heads the United Torah Judaism party, said UTJ had not yet decided whether to support the budget in the vote. Other Haredi parties did not immediately provide comment.

Israeli media reported that Finance Minister Bezalel Smotrich told ultra-Orthodox parties that he would not link the budget vote to the draft law and that if they did not vote for the budget, Israel should have an election.

A spokesman for Smotrich, who has said the Haredi parties would benefit from extra spending this year, did not comment on the reports.

Even if the budget gets preliminary approval, it still needs to pass two more votes by March 31 to become law.

DEFICIT CEILING

In all, state spending would be 662 billion shekels ($214 billion) excluding debt servicing. The deficit ceiling was set at 3.9% of gross domestic product, a level the Bank of Israel deems as too high since it does not allow for a reduction in the debt burden.

"Despite all my reservations and everything included in the budget ... it must be passed," Bank of Israel Governor Amir Yaron said on Wednesday at a meeting of parliament's finance committee.

"The deficit target must not creep up, especially given the possibility of additional expenditures due to geopolitical developments."

The budget deficit slipped to 4.7% of GDP in 2025 from 6.8% in 2023. A spike in defence costs due to the Gaza war pushed the deficit higher the past two years.

While an October ceasefire has halted most fighting, it has not stopped entirely and both sides have accused each other of violating the deal's provisions.

($1 = 3.0925 shekels)

(Reporting by Steven Scheer; Editing by Alex Richardson)