Smotrich, Netanyahu say Haredi draft exemption law shelved to boost defense budget by tens of billions

Finance Minister Bezalel Smotrich announces that the ultra-Orthodox draft exemption law being advanced by the coalition, as well as unspecified parts of his economic reform agenda, will be temporarily shelved as the government works to pass the 2026 state budget as quickly as possible in order to pour billions of shekels into defense amid the ongoing war with Iran.

In a joint statement with Smotrich, Prime Minister Benjamin Netanyahu declares that while Israel dismantled Iran’s “nuclear and ballistic capabilities” during last summer’s war and is now “acting with increased force” to destroy its remaining capabilities, such an operation costs tens of billions of shekels, requiring a “special” state budget to support the war effort.

According to Channel 12, the defense budget is set to be increased by NIS 28 billion ($9 billion) on top of the NIS 112 billion ($34 billion) for defense listed in the version of the state budget which passed its first of three readings in the Knesset in January.

According to the Kan public broadcaster, the increased defense spending will be made possible by freeing up funds via a broad 3% cut to ministerial budgets.

Israel must massively increase the defense budget in order “to destroy the Iranian axis of evil,” and, such as, “we are now putting aside controversial issues that are not suitable for wartime,” such as legislation exempting yeshiva students from military service as well as “several reforms around which we have not yet reached a broad consensus,” says Smotrich.

Netanyahu recently stated that the passage of the draft exemption bill will have to wait until after the state budget is approved.

Smotrich does not list which of his proposed economic reforms will be shelved, though his spokesman told The Times of Israel earlier this evening that his dairy sector reform has been removed from the 2026 Arrangements Law, a critical piece of legislation whose passage is needed in order to adopt the 2026 state budget.

Smotrich has also been pushing to lower VAT on imports, open up competition in the banking sector, and impose an NIS 30 ($10) tax on e-cigarettes, among other proposals.

Continuing his comments, Smotrich states that he and Netanyahu had “wanted to bring more good news to the citizens of Israel in this budget, with an emphasis on the struggle against the cost of living,” but the “responsibility resting on our shoulders requires us to focus on passing the budget immediately for the security of the state and the welfare of its residents.”

“Passing the budget immediately will allow us, with God’s help, to win the war, provide good services to the citizens of Israel in many fields, establish a new regional order in the Middle East centered on the State of Israel as a regional and global power, and put the State of Israel on a path of accelerated growth, development and prosperity in the coming years,” he says.

Smotrich does not discuss any measures to assist citizens hit hard by the war.

The joint statement comes only hours after the government voted to approve over NIS 5 billion ($1.6 billion) in discretionary coalition funds for Haredi institutions, West Bank settlements and other party priorities in the 2026 state budget, drawing harsh condemnations from opposition politicians who claimed the allocations constituted a subsidy for draft evasion.