Israel raises defense budget by NIS 28B ($9B) — Haredi draft exemption and economic reforms shelved for war

Finance Minister Bezalel Smotrich announced that the ultra-Orthodox draft exemption law and unspecified economic reforms will be temporarily shelved as the government works to pass the 2026 state budget quickly to pour billions into defense. In a joint statement with Prime Minister Netanyahu, Smotrich declared that while Israel dismantled Iran's 'nuclear and ballistic capabilities' during last summer's war and is now 'acting with increased force' to destroy remaining capabilities, 'such an operation costs tens of billions of shekels, requiring a special state budget to support the war effort.' According to Channel 12, the defense budget is set to be increased by NIS 28 billion ($9 billion) on top of the NIS 112 billion ($34 billion) already allocated for defense in the version of the state budget that passed its first reading in January. The increased defense spending will be funded via a broad 3% cut to all ministerial budgets. Israel must massively increase the defense budget to 'destroy the Iranian axis of evil,' Netanyahu and Smotrich said, adding that 'we are now putting aside controversial issues that are not suitable for wartime — such as legislation exempting yeshiva students from military service.' Smotrich's dairy sector reform has also been removed from the 2026 Arrangements Law. The decision to shelve the Haredi draft exemption is politically significant — it removes a key demand from ultra-Orthodox coalition partners and may create coalition friction. However, the framing as a wartime necessity gives Netanyahu political cover.