Kathmandu— Israel is facing increasing financial strain as its ongoing military conflicts, coupled with declining tax income and a growing emigration of high-earners, contribute to a rapidly escalating national debt. While the country’s parliamentary election campaigns are dominated by discussions of regional threats and security concerns, few candidates are addressing the substantial economic costs of these conflicts or outlining plans for fiscal responsibility. Israel's central bank estimates that 350 billion shekels ($118 billion) have been spent on wars between 2023 and 2026, excluding potential conflict with Iran, and this spending is significantly impacting the nation’s economic stability.

Rising Debt and Defence Spending

Israel’s national debt currently stands at approximately 1.4 trillion shekels ($480 billion), a substantial increase from 1.07 trillion shekels ($365 billion) before October 2023. Defence spending alone accounted for 249 billion shekels ($84 billion) and now represents over 8 percent of the country’s gross domestic product (GDP), nearly doubling its share from 5.2 percent in 2023. This surge in military expenditure is placing a significant burden on the Israeli economy, as the cost of defence and debt servicing are rising faster than tax collection.

Economic Strain and Emigration

Tax revenues reached a record 509.3 billion shekels ($172.6 billion) in 2025, but this increase is being offset by the escalating costs of defence and debt servicing. The International Monetary Fund (IMF) has cautioned that Israel’s 2026 budget deficit ceiling is too high to effectively reduce its national debt. Adding to these economic pressures is a growing trend of emigration among Israel's top earners, with an 80 percent increase in departures since 2019, according to tax authority data.

Welfare Costs and Long-Term Projections

The structure of Israeli society also contributes to the financial strain. The country’s growing ultra-Orthodox population is largely exempt from military service and relies heavily on state welfare programs, receiving an average net benefit of around 6,000 shekels ($2,000) per month. In contrast, non-Haredi households contribute an estimated 8,800 shekels ($2,980) more in taxes than they receive in benefits. Michael Ben-Gad, a professor of economics at City St George’s, University of London, noted that the long-term projection for Israel's debt to GDP ratio fluctuates between 67 and 70 percent – concerning given it was around 60 percent before October 2023.

Political Disregard for Economic Concerns

Despite the mounting economic challenges, politicians are largely avoiding discussions about fiscal responsibility during the election campaign. Yossi Mekelberg, an Associate Fellow at Chatham House, explained that “there isn’t any electoral benefit in talking about the economy,” as voters appear more interested in hearing rhetoric focused on security and military strength. Shir Hever, a political economist, added that even when economic issues are raised, they often focus on wealth inequality rather than broader taxation concerns.

Tech Sector Growth and Unpaid Debts

Despite the debt crisis, Israel’s economy is projected to grow by 3.5 percent this year, largely driven by its thriving tech sector, particularly in cybersecurity and defence. However, even this growth isn't fully realized due to outstanding debts owed to private defence contractors like Elbit Systems; the government reportedly owes these companies $3.5 billion. Hever also warned of potential risks to Israel’s ability to service its debt through European bond markets, citing growing political pressure to halt assistance due to events in Gaza.

The Israeli government faces a complex economic situation requiring difficult decisions regarding taxation and spending. Without addressing the rising national debt, Israel risks long-term financial instability despite its current economic growth.

(With inputs from Al Jazeera)

Originally published on abcnews.com.np.