Israel plans to increase its defense budget by nearly 40 billion shekels (around $13 billion), equivalent to approximately 2% of GDP, to finance the war with Iran, Bloomberg reports, citing a Finance Ministry official.

The additional funding is part of a revised 2026 budget to be discussed and possibly approved at Prime Minister Benjamin Netanyahu's cabinet meeting on Tuesday evening, after which it must be signed by parliament before the end of the month.

According to the official, the defense budget will be increased by 28 billion shekels, with another 10 billion set aside in reserve for possible military needs. Defense spending — the largest budget item — will reach 140 billion shekels, 115% higher than in 2023, before the Gaza war. The total spending plan now approaches 700 billion shekels.

The additional funds will go primarily toward replenishing military stockpiles and paying reservists. The previous budget had set a cap of 40,000 reservists per year with a maximum of 55 days of service each, but since the war with Iran began in late February, the army has called up more than 100,000 reservists.

Israel's debt is at record levels after two years of war, with government borrowing rising since hostilities with Iran resumed. The deficit target, previously set at 3.9%, will likely be increased, though the exact decision will be made at Tuesday's cabinet meeting. A deficit above 3.9% could push the debt-to-GDP ratio higher from its current level of nearly 69%.

The government has already announced austerity measures worth around 30 billion shekels to finance Israel's wars in Gaza, Lebanon, and Iran, which will remain in effect through end of 2027. Under Israeli law, the budget must be approved by March 31, or the government automatically dissolves.