Israel’s parliament approved a state budget that should stabilize the ruling coalition until elections later this year and which will see defense spending increase significantly to cover the wars against Iran and in Lebanon.

The spending plan, set to run for the rest of 2026, will be funded by additional borrowing and cuts in some civilian spending. It marks a setback for Israel’s attempts to improve its fiscal standing and reduce its debt levels following the ceasefire in the war against Hamas in Gaza in October.

The budget, approved by lawmakers early Monday by 62 votes to 55, totals just under 700 billion shekels ($222 billion) and sets a deficit target of 4.9% of gross domestic product. This is likely to push Israel’s ratio of debt to GDP higher the the current level of 68.6%. That figure has risen from 60% since the start of the war in Gaza in late 2023.

While growth for this year was previously forecast to be 5.2%, it will instead be 3.3%-3.5% if the Iran war continues to the end of June and 3.8% if it finishes within a month, the finance ministry’s chief economist said on Monday.

Defense spending will climb to 143 billion shekels, about 120% higher than in 2023, and is the largest item in the budget. Defense spending was boosted by 32 billion shekels with another 13 billion pre-approved to be used if needed.

The extra money is mostly for replenishing Israel’s military arms stockpiles and paying reserve soldiers.

The U.S.-Israeli war on Iran is into its second month, with little sign of it easing. Israel has also invaded Lebanon in a parallel conflict against Iran-backed Hezbollah militants.

“This war is costing lots of money,” Prime Minister Benjamin Netanyahu said last week.

Though the fiscal deficit will rise this year, Israeli banks have agreed to pay a one-time levy of some 3 billion shekels into state coffers, which will help contain it.

To win support for the budget, Netanyahu shelved several bills that were causing friction within the governing coalition, including a controversial measure that would exempt ultra-Orthodox men from serving in the military.

Ultra-Orthodox parties were granted generous budgets in the form of coalition funds — political handouts allocated to parties in the governing coalition for use at their own discretion. Those are largely spent on religious causes and those related to West Bank settlements.

Additionally, in the overnight voting in the Knesset, the government agreed to about 800 million shekels of spending on religious seminaries and their students that the country’s attorney general declared illegal. She did so because of the students’ refusal to serve in the military.

The budget approval grants Netanyahu’s Cabinet a lifeline, as failure to approve it by March 31 would have meant an automatic collapse of the government under Israeli law. The next elections are set to be held by late October.

Opposition politicians accused the government, the most right-wing in Israel’s history, of “plundering.”

“The governing coalition taking pride in its plundering of the State of Israel after deviating budgets to draft-dodgers and the corrupt,” Yair Lapid, the official opposition leader in Israel, said. “They are not Zionists, or nationalists, they are thieves and extortionists.”

The budget includes tax exemptions for returning Israeli expatriates and Jewish immigrants in an attempt to counter a war-triggered brain drain. There are also corporate tax waivers for research and development that are aimed at appeasing tech companies.

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