Israel's 2025 Financial Report Highlights Tax Fund Strain and Rising Defense Costs
Israel's 2025 financial report warns of a depleting property tax fund, surging defense costs, and massive long-term pension liabilities reaching 718 billion NIS.
The State Financial Report for 2025, prepared by Accountant General Michal Abadi-Boiangiu, presents a comprehensive overview of Israel's economic health, revealing critical pressures on the property tax fund, growing defense expenditures, and massive long-term pension liabilities.
Depleting Property Tax Fund and Infrastructure Boom
The state property tax fund, designed to compensate for direct and indirect war damages, is rapidly depleting. Funded by purchase taxes on real estate transactions with a 25% allocation to the fund, it paid out 37 billion NIS in compensation from the outbreak of the war through the end of last year, followed by an additional 5 billion NIS following Operation "Roaring Lion". With only 2 billion NIS remaining in the fund, the government will likely need to increase allocations.
Simultaneously, the private sector has heavily invested in state infrastructure tenders, with investments climbing by 6.5 billion NIS in a single year to reach approximately 53 billion NIS by the end of 2025, primarily in transportation. However, the massive 181 billion NIS Metro project poses potential budgetary risks.
"This is a critical project for growth, but it is a complex event that, due to a mismatch in the timing of revenues and expenditures, could spill over into the debt-to-GDP ratio and the state budget," stated Accountant General Abadi-Boiangiu.
Soaring Defense Costs and Budgetary Pressures
Government spending has been heavily dominated by the ongoing war. Defense expenditures reached 166 billion NIS last year, accounting for 7.8% of GDP. While the Budgets Department advocates for a "new normal" of lower military spending, the Accountant General's office warns that costs cannot be reduced next year due to military procurement, 32 billion NIS in reserve duty compensation, and 11 billion NIS for the rehabilitation of bereaved families and IDF disabled veterans.
Furthermore, state liabilities for budgetary pensions stand at 718 billion NIS, an increase of 8 billion NIS from the previous year, with 70% of the liability belonging to retirees. These payments are projected to peak at approximately 41 billion NIS in 2038. Israel's debt-to-GDP ratio stood at 67.9% at the end of last year, reflecting a modest 0.2% increase following a GDP upward revision by the Central Bureau of Statistics.
