War’s Financial Burden on Israel
War is expensive. In addition to destruction, personal tragedies, and deaths, it costs a lot of money to buy and mobilize devices. It also costs workers, and its economy, on several fronts. Since the militant Islamist group Hamas attacked the Jewish state on October 7, 2023, Israel has fought intensively in Gaza. Then Israel started air strikes in Lebanon as a retaliation for cross-border Hezbollah rocket and drone attacks. Last week Israel scored deep in Iran with the aim of deactivating its nuclear skills.
Israel’s Big Problems and Big Budgets
In all of this, Israel’s economy is under considerable stress. Many reservists were appointed to fight, forcing them to temporarily leave their work. In addition, many Palestinians have had their work permits canceled, and the limits of the borders have become increasingly difficult for them. All of this makes it difficult to fill job offers. In April, the country reported an unemployment rate of 4.8% in 2021. At the same time, military spending has increased in Israel. In 2024 it grew by 65% to 46.5 billion US dollars. This brings its military spending to 8.8% of GDP – the second highest in the world, after Ukraine.
Economic Uncertainty
The country’s budget in 2025 comprises expenditure of 756 billion Israeli Schekel – an increase of 21% compared to the previous year. It is expected to be the largest budget in the history of Israel and contains 38.6 billion US dollars for defense. Itai Ater, an economic professor, says that the war is currently "very expensive", and there is "great uncertainty about the near and long-term future". The military costs for both the offensive and the defense fronts are very high. This will certainly have a budget, the deficit, GDP, and Israeli debts.
Tax Increases
In order to compensate for some of these financial burdens, the government has increased taxes. The country’s added value (VAT) for most goods and services rose from 17% to 18% at the beginning of this year. Health tax also rose from employees and national insurance contributions. The Israeli economy has suffered in the past year and a half, but was "surprisingly resilient," says Benjamin Bental, emeritus professor of economics.
High-Tech Industry
It is no coincidence that Israel is known for its advanced high-tech industry. The sector employs 12% of the country’s workforce and pays around 25% of all income taxes due to its high salaries. High-tech services and products make up 64% of the country’s exports and around 20% of the total GDP. However, the number of high-tech employees in Israel has stagnated since 2022. This emerges from a report published in April by the Israel Innovation Authority.
Investors and Long-Term Risks
The greatest unknown is the general uncertainty of the situation in and around Israel. This affects employees, employers, and investors. The short-term risks have increased for investors, but the real impact depends on how long the military conflicts take and how they end. An alternative scenario in which we enter Iran in a long war of wear and tear is likely. In this case, it is unlikely that the economy will thrive. With regard to the future, the security situation in general and the Israeli-Palestinian conflict in particular are one of the country’s long-term economic challenges. In addition to these tensions, it will also be important to keep an eye on the internal social gap of the country and the judicial overhaul and its effects on democratic institutions.
