With Israel’s 2025 budget now passed, the massive direct and indirect costs of the wars in Gaza and Lebanon — and how they will affect Israeli society — are coming into sharper view. Israeli social, medical and educational services are all expected to feel the strain, even as these areas have taken on greater importance, in light of a major increase in defense spending as well as growing interest payments on Israeli government debt.

That’s the assessment of experts from the Taub Center for Social Policy Studies think tank.

These budget cuts, along with rising costs of living — already high in Israel and which is expected to get even higher in the coming two years —  will disproportionately affect lower- and middle-class citizens, Nir Kaidar, director-general of the center, said this week during a webinar breaking down the 2025 budget and its ramifications.

According to Kaidar, the number of people living in poverty in Israel may not change significantly as a result of these cuts, but the conditions for those already living in poverty and the middle class are expected to become increasingly challenging. In addition, he said, there remains a severe shortage of social workers and teachers in the country, with over 20% of teachers leaving the profession each year.

Kaidar said the original total budget for 2024 was approximately NIS 450 billion ($118.2 billion), with most of it going to social services, while NIS 100 billion ($26.3 billion) went to defense and security. But by the end of 2024, because of the war, the budget had changed significantly, and the amount spent on security and defense had doubled, with Israel now spending 90-100 NIS billion ($23.6 billion-$26.3 billion) more on defense and security than initially planned, he said.

For social services, Kaidar said, “this is a major issue.”

In addition, while the defense expenses approved by the Knesset two weeks ago for the 2025 budget are expected to be less than those of 2024, they are still 50% higher than the original 2024 budget. Israel’s interest payments on its debt are also expected to increase significantly, which will make it hard to retain current expenditures on social services without greatly increasing the deficit, he said. “With the interest payment and with the defense payment, it will be very hard to maintain,” he said.

The overall budget for social services has seen some increases in the 2025 budget, but even these will primarily go to maintaining the same level of service amid rising costs and rising demands. The ability to maintain these levels of funding is also under threat due to rising defense and interest costs. There are potential cuts planned for the 2026 and 2027 budgets.

The Ministry of Health’s budget has increased by roughly NIS 5 billion ($1.3 billion), going mainly to public health-care providers (known in Hebrew as kupot holim), but according to Kaidar, this is not to improve the system but to maintain the status quo amid natural population growth, aging and rising health costs. “It’s mainly in order to maintain the same level of health services in Israel,” he said.

A primary focus for the Ministry of Health is on increasing the number of nurses and physicians in Israel, as a significant portion of the medical workforce is currently trained abroad while many doctors and nurses are reaching retirement age, he said. This is crucial due to the aging population and rising health-care demands. 

The ministry aims to improve mental health support, which Kaidar said is in dire need of improvement, with the government planning to invest approximately NIS 1.4 billion ($368.9 million) in mental health initiatives. “We have an excellent health system in Israel, but the mental health part is broken… But it is hard to fix structural problems just with money. The mental health system also needs a paradigm change,” he said.

Similarly, the Ministry of Education is seeing increased funding to meet the needs of the growing number of children in Israeli schools, particularly in special education. “We are spending much more money now on special education, [but] it’s not to give better services — there are more kids that need special education in Israel,” he said.

On a positive note, Kaidar said that despite the challenges facing Israel, he was optimistic Israel could still make improvements to the economy that could alter this trajectory.

“If we take steps to better integrate Arabs and Haredim into the labor market, increase the competition in the Israeli economy and improve the quality of public services, these changes are entirely possible,” he said.