Bank of Israel governor warns funding yeshiva students, draft exemptions threatens growth |
Bank of Israel Governor Amir Yaron warned cabinet ministers on Thursday that proposed government spending on the ultra-Orthodox community failing to draft members of the community — instead further deepening the military burden on reservists, would have far-reaching consequences for the Israeli economy and undermine long-term growth.
Yaron was speaking before a cabinet meeting to approve Finance Minister Bezalel Smotrich’s budget proposal for 2026. Discussions began on Thursday and final voting was expected on Friday.
In examining the plan, Amir specifically raised alarm over allocated subsidies for the ultra-Orthodox community, including funding for yeshivas and yeshiva students, many of whom are not part of the workforce, and do not serve in the army like other Jewish Israelis.
This, Yaron warned, would “create incentives for non-participation in the labor market and for not acquiring education that increases earning potential.”
“Such budgets harm long-term growth and living standards, and their impact will increase over time,” he continued.
Amir lauded several aspects of the budget proposal aimed at bringing down Israel’s sky-high cost of living and urged the government to “adopt the necessary measures” to achieve it.
He singled out Smotrich’s proposal to expand the value-added tax exemption on personal imports from $75 to $150; his “dairy reform” to waive Israel’s high tariffs on milk imports to encourage competition, increase the supply, and lower the cost of the most popular basic good bought by consumers; and his proposal to ease restrictions for small banks to enter the market to increase competition in the sector.
Amir said that these policies may help to “reduce the cost of living,” and that the Bank of Israel “welcomes these measures.”
He also highlighted the dissonance between the government’s call to massively increase defense spending by hundreds of billions of shekels in the coming years, and Smotrich’s plans to cut taxes.
“Such a level of defense spending, alongside existing civil expenditure patterns and current tax rates, does not support a reduction in the debt-to-GDP........