Israel's permanent state of war comes with economic, social costs

The enormous costs of Israel’s multi-front war and Prime Minister Benjamin Netanyahu’s determination to turn his country into a “super-Sparta” of the Middle East are driving up the defence budget and raising fears of cutbacks in education and healthcare. The total cost of the series of interconnected regional conflicts that began with Hamas’s attack on Israel on October 7, 2023 stood at 405 billion shekels ($138bn) as of late April, according to the governor of the Bank of Israel, Amir Yaron. “That’s a huge figure, more than 17 per cent of GDP,” he said during a recent economic conference in Herzliya, north of Tel Aviv. Just the military campaign against Iran, which began with a wave of US-Israeli strikes on February 28, incurred an additional cost of 35bn shekels ($12bn) for the state up until a ceasefire took effect on April 8, according to an initial estimate by the finance ministry. Following the adoption of the 2026 budget in late March, the government noted the defence ministry’s budget had more than doubled since October 2023. To support the war effort, the government borrowed heavily on international markets in 2024 and 2025. It has reached the point where public debt now accounts for more than 69pc of GDP, compared to 60pc before the war, according to the Treasury. Taxes and social security contributions have also increased. ‘Trauma economy’ Israelis are “paying twice” for the war, said Esteban Klor, an economics professor at Jerusalem’s Hebrew University. The first cost, he told AFP, is via the decline in government social spending and reduced investment in public services resulting from several successive “across-the-board” budget cuts, even as “we are… increasing the debt”. “Education will suffer, the quality of infrastructure will decline, as will the performance of the healthcare system,” he said. The second cost is to economic growth, though this has been less visible as the Israeli economy quickly overcame the initial shock of the war. GDP had return