Tel Aviv Under Pressure: Internal Divisions and Economic Deterioration

By: Mohamed Mahmoud Abdel Wahaba.

After weeks of political wrangling and intense committee discussions, the Israeli Knesset has approved the largest state budget in the country’s history—estimated at $169 billion. The vote passed by a narrow margin of 66 to 52, with the far-right Jewish Power party, led by Itamar Ben Gvir, playing a decisive role in ensuring its passage. Ben Gvir controls six of his party’s seven Knesset seats, and without their support, the budget would have fallen short by a single vote.

Analysts widely agree that the coalition's survival hinged on the return of Ben Gvir to the government fold, ensuring Netanyahu’s ability to push the budget through and solidify his leadership until 2026. However, the approval has done little to calm Israel’s increasingly turbulent political climate or address growing public concern over the economy.

The newly approved budget includes an unprecedented $30 billion allocation for defense and military expenditures—making it the largest security spend in Israeli history. While government officials, including Finance Minister Bezalel Smotrich, claim the budget is necessary to secure victory both on the military front and within Israel’s borders, many critics see it as a political tool aimed at preserving the ruling coalition rather than addressing the public’s needs.

Economic concerns are intensifying. The national deficit is projected to hit 4.9%, a full 25% higher than the government's own commitments. Recent polling indicates that over 60% of Israelis feel their financial situation has deteriorated since the beginning of the year. Credit rating agencies like Moody’s have also issued stark warnings about Israel’s political instability, citing increased risks stemming from the government’s ongoing clashes with the judiciary.

The budget vote itself was marked by tension and protest. Opposition lawmakers held up signs displaying the number "59," representing the hostages still held in Gaza. Opposition leader Yair Lapid sharply criticized Netanyahu, accusing him of "sacrificing the people on the altar of politics" and redirecting taxpayer money to satisfy coalition allies. Avigdor Lieberman joined the chorus of criticism, decrying rising taxes, inflation, and cost-of-living pressures, while accusing the government of abandoning the middle class and army reservists in favor of narrow political interests.

Parallel to the budget vote, the government submitted legal arguments to the Supreme Court defending its authority to dismiss Shin Bet chief Ronen Bar. The Prime Minister’s Office argued that the court has no jurisdiction over national security appointments. Tensions deepened further with reports—denied by Ben Gvir—that senior intelligence officials had to intervene to prevent a confrontation between him and the Shin Bet chief during a security briefing.

Israel’s business community has not remained silent. The Israeli Business Forum issued a statement in support of the rule of law and urged Netanyahu to halt what it described as destructive steps that are pushing Israel toward one of its most dangerous periods in recent memory—economically, socially, and from a national security standpoint.

Political criticism continues to mount. Benny Gantz, leader of the National Unity Party, said even former Likud Prime Minister Menachem Begin "would not rest in his grave" knowing what Netanyahu has done to the institutions of state. Gantz and others have warned that Netanyahu’s efforts to weaken the judiciary and centralize power pose direct threats to Israel’s democracy and national security. Some analysts say that the dismissal of the Shin Bet chief is potentially more destabilizing than the previous sackings of the defense minister or IDF chief.

Meanwhile, American pressure is growing. According to Israeli media, U.S. officials have reaffirmed their support for Israel’s campaign in Gaza but signaled that their patience has limits. Washington is urging Netanyahu to agree to a deal for the release of hostages, now that his coalition has been stabilized by the budget vote. Reports also suggest that U.S. officials have little confidence in the geopolitical awareness of key Israeli ministers like Smotrich and Ben Gvir.

Economic concerns are far from over. Further credit downgrades are expected, with agencies like Fitch and Moody’s closely monitoring Israel’s political risks. The situation was further inflamed by a controversial statement Netanyahu posted on social media, in which he compared himself to U S President Donald Trump, accusing a “deep state” of using the judicial system to target right-wing leaders and undermine democratic outcomes.