Rising defense costs, demographic change, and gaps in education, employment, and military service are turning a long-running social dispute into a national fiscal challenge

Israel’s debate over the ultra-Orthodox community is no longer only about religion, draft exemptions, or coalition politics. At one of the country’s leading economic policy forums this week, it became a harder question: Can Israel afford its demographic future?

With defense spending rising toward 8% of gross domestic product and roughly a quarter of the state budget, and with Haredim projected to make up a growing share of draft-age Jewish Israelis, the question is no longer theoretical.

In Israel, military service is part of the social contract, defense spending consumes a growing share of national resources, and the army is not a distant institution but a common experience for most Jewish citizens. As those pressures grow, Haredi integration no longer appears only as a dispute over exemptions or religion, but as a budgetary, military, and economic issue.

The stakes are straightforward. As Haredim become a larger share of Israel’s population, the combination of draft exemptions, limited core education, lower male labor-force participation, and sectoral political leverage could strain the army, the tax base, and the high-skill economy on which Israel increasingly depends.

That question ran through the Eli Hurvitz Conference on Economy and Society, organized by the Israel Democracy Institute in Jerusalem. The conference covered defense spending, artificial intelligence, high-tech, the cost of living, reconstruction, healthcare, and the state budget. Yet the Haredi issue repeatedly returned, sometimes directly and sometimes through the broader language of human capital, labor participation, education, and public priorities.

The term Haredi refers to Israel’s ultra-Orthodox Jewish public, a rapidly growing community whose mainstream male institutions traditionally emphasize full-time Torah study. Many Haredi boys do not receive the same core curriculum in mathematics, English, and science as other Israelis; many Haredi men do not serve in the army, and many enter the workforce late or remain outside it for extended periods. Haredi women work at higher rates, often supporting large families, but household income remains relatively low.

Gilad Cohen Kovacs, a researcher at the Israel Democracy Institute who presented a session on “The Economy as a Driver of Change in Haredi Autonomy,” argued that the issue is also a question of how a separate institutional structure shapes growth, employment, and the welfare state.

Cohen Kovacs said the subsidies that support the current Haredi model amount to about 35 to 37 billion shekels a year, or roughly 5.5% of the state budget. Without change, he warned, that figure could grow to more than 60 billion shekels a year in the coming decades. The figures were presented as part of his conference analysis of Haredi autonomy and state support.

He stressed that the issue should not be understood as a simple transfer of “money to Haredim.” In his analysis, part of the money incentivizes patterns that keep Haredi men outside the workforce, while another part strengthens what he described as a parallel system of authority, education networks, communal institutions, and political control.

A welfare state, Cohen Kovacs said, is meant to help those who cannot work, protect people who have been harmed, and enable mobility. In the Haredi case, he argued, part of the subsidy supports the opposite pattern: lower use of earning capacity, partial employment, large families, and a yeshiva-centered way of life.

These are not the conditions for which the welfare state was built

“These are not the conditions for which the welfare state was built,” he said.

That distinction shifts the focus away from individual poverty and toward policy incentives that, according to Cohen Kovacs, sustain dependence and separation. His broader conclusion was that the current model produces a significant intersectoral transfer from non-Haredi Jewish households to Haredi households through tax gaps, public services, subsidies, and exemptions from shared obligations.

Former Prime Minister Naftali Bennett also cited studies on that net balance. According to Bennett, what he described as a “Zionist household”—a non-Haredi Jewish household integrated into military service and the labor market—gives the state about 6,000 shekels more per month than it consumes or receives, while a Haredi household receives about 4,000 shekels more per month than it pays. He described that as a gap of about 10,000 shekels per month between the two household types.

The comparison brought the fiscal debate down from national budgets to family income. It was not presented as a claim that one specific family directly funds another, but as an aggregate measure of taxes, state services, subsidies, benefits, and participation in public obligations.

Dr. Gilad Malach, a researcher at the Israel Democracy Institute who presented a separate study on the defense burden, told The Media Line that his work dealt with one specific part of the larger subsidy debate: security. He said Israel usually treats defense spending as a national budget item, without asking how that burden is distributed across different sectors of society.

Malach said it would be “too simplistic” to explain the gap just by noting that the Haredi public is poorer and therefore pays less tax. “You might say, ‘OK, this is a poor society, so they pay less than their share in the population,’” he said. “But we see that the gaps between them and others—it’s much more than that.”

According to Malach, the visible security budget stands at about 120 billion shekels a year, but the real cost is closer to 150 billion once hidden burdens are included: conscripts paid below their labor value, delayed entry into the workforce, and the cost to employers when reservists leave their jobs for extended service.

If the ultra-Orthodox are about 14% of Israel’s population, he said, they should account for roughly 21 billion shekels of that burden. In practice, he estimated, they contribute about 6 billion.

“So, the gap is 15 billion,” he said.

The figure is politically charged because it places the draft debate inside a broader fiscal equation: who pays for security, who serves, and who carries the indirect costs of a society built around long military service.

Malach was careful not to claim that the gap can be closed quickly. He said the policy tools he presented could reduce it, but not erase it. At most, he estimated, the immediate effect could be several billion shekels, not the full 15 billion.

“Just to make the situation less unequal, more equal than today, but not a real equality between the population,” he said.

The demographic warning was starker. Some forecasts, Malach said, place the Haredi population at around 30% of Israel’s total population within roughly four decades. The more important number, he added, is not the overall population share, but the share among draft-age Jews.

Among Jewish 18-year-olds, he said, the Haredi share could exceed half. In his view, that forecast, if it came true, would mean that “We won’t have manpower for an army if the situation would be that they are not serving in the army. And we can’t have a prosperous economy if so many people won’t have the ability to work in a modern labor market.”

Reem Aminoach, a senior researcher at the Institute for National Security Studies who previously served as financial adviser to the Israel Defense Forces chief of staff, told The Media Line that the problem is often made to look more complicated than it is.

“All you need is to cancel the deferral,” he asserted, referring to the legal mechanism that has allowed many Haredi men to avoid conscription as long as they remain in yeshiva study.

In his view, canceling the deferral would force a clearer choice: service, employment, or some other publicly accountable framework, rather than a system in which avoiding the army also discourages work. Aminoach said the army’s need is practical and immediate.

The army lacks fighters, not clerks

“The army lacks fighters, not clerks,” he said.

Shaul Meridor, a former senior Finance Ministry official, brought the debate down from national aggregates to the level of a single Israeli family. He described a middle- or lower-middle-class family in places such as Migdal HaEmek or Dimona, with five children, one of them serving in Lebanon, and unable to make ends meet. According to figures he cited from a recent study, such a family subsidizes a comparable low-income Haredi family by nearly 1,000 shekels a month.

“Many times we talk about high-tech and the rich and all kinds of other people who subsidize,” Meridor said. “I am talking about socioeconomic cluster four. Whoever knows what that means understands that this is not high-tech, and these are not people sitting in Tel Aviv or Ramat Hasharon. These are people who do not finish the month.”

He said the moral question after October 7 was no longer abstract.

“Why should a family that does not finish the month have to allocate, from money it does not have, 1,000 shekels net a month to subsidize a Haredi family that chose a different life?”

Meridor also argued that Israel’s current policies harm Haredi children themselves by steering them toward poverty.

“As leadership, we must not condemn Haredi children to poverty,” he said. “And that is what we are doing today.”

His proposed principle was direct: those who serve should receive, those who do not serve should not. Combat service, he said, should receive the most; other service should receive less; evasion should receive nothing. But he cautioned that dismantling Haredi autonomy would not happen through a single major law. It would require changes in thousands of government decisions, benefits, tax rules, and allocations that currently favor institutions over individuals.

Political speakers approached the same issue from different directions. Bennett focused on education and subsidies, using his speech to attack daycare payments for families in which the father does not work and does not serve. He also proposed a broad education reform built around a shared state curriculum, while preserving limited community autonomy.

Avigdor Liberman, chairman of Yisrael Beitenu and a former defense and finance minister, framed the issue through coalition politics. In a conversation with Yohanan Plesner, president of the Israel Democracy Institute, Liberman argued that Israel cannot sustain higher defense spending while preserving sectoral budgets and avoiding structural reform. He said any serious change would require a government not dependent on the Haredi parties Shas and United Torah Judaism.

Former Defense Minister Benny Gantz offered a more cautious critique. He said parts of the Haredi leadership were making a grave mistake by perpetuating a situation in which the community is more important than the state. At the same time, he emphasized that there are Haredim who work, study, serve, and contribute to the economy, and that they deserve respect.

Meirav Cohen, a Yesh Atid lawmaker and former minister for social equality, used Jerusalem as a warning. Speaking as a Jerusalemite, she said the capital already shows what happens when integration in the army, employment, and education does not move fast enough. Jerusalem, she said, has fallen in less than three decades from socioeconomic cluster five to cluster two. Every second household receives a municipal property tax discount, she said, meaning the other half must carry some of the highest municipal tax burdens in Israel.

There is no economic model for this

“There is no economic model for this,” Cohen said. “You don’t need prophecies or warnings. Look at what happened to us in Jerusalem.”

The Haredi debate came during a conference dominated by the rising cost of security and the shrinking space for civilian spending. Former Bank of Israel Governor Karnit Flug said in the opening budget session that Israel’s economy had shown resilience, but that the Israel-Hamas war had imposed a heavy price. Defense spending, she said, now stands near 8% of GDP, compared with a little more than 4% before October 7, 2023. Its share of the total budget has risen to about one-quarter, compared with 16% before the war.

That larger fiscal picture helps explain why Haredi integration is no longer treated only as a dispute over religious exemptions. Israel is trying to fund a larger defense establishment, increased rehabilitation needs, more support for reservists, reconstruction in the north and south, health-system gaps, transportation infrastructure, and a high-tech sector facing global competition. Speakers also warned that insufficient investment in Arab society carries its own cost in lost output, making the broader point that Israel cannot afford to underinvest in any large population group while defense and rehabilitation needs are rising.

Artificial intelligence and high-tech added another layer. The Israel Innovation Authority’s 2026 report, presented at the conference, showed that high-tech remains Israel’s main growth engine. In 2025, the sector contributed roughly half of the economy’s growth, reached 18.3% of GDP, accounted for 58% of exports, and employed more than 400,000 people. But the same report also warned of stagnation in employment share, a decline in research and development jobs in Israel, expansion of activity abroad, and growing pressure from the shekel’s appreciation.

That is why Haredi integration now intersects with the artificial intelligence debate. Israel wants to compete in a global economy built on advanced skills, data science, engineering, defense technology, and artificial intelligence. But a growing share of its future workforce is educated in systems that often do not provide the tools required for that economy. The point was not that every Israeli must work in high-tech, but that the next economy will demand basic quantitative and digital skills across far more jobs.

Eli Hurvitz, CEO of the Eddie and Jules Trump Family Foundation, told the conference that the children currently choosing what to study in high school will be the workforce of 2040. In an artificial intelligence-driven world, he said, mathematics, data, teamwork, and independent learning will become basic conditions for opportunity.

The challenge of Haredi integration does not fit neatly into familiar categories of minority rights or welfare policy. In Israel, it is tied to compulsory service, repeated wars, high defense costs, a knowledge-based economy, and a parliamentary system in which sectoral parties can hold the balance of power. The Haredi community is a growing part of Israel’s electorate, budget, labor market, and future security burden. That is why the debate has become one of the country’s central tests of governance.

The conference produced no single, comprehensive solution. Some speakers emphasized immediate enforcement of the existing draft framework. Others focused on incentives, core education, tax benefits, or direct ties between the state and Haredi individuals rather than through communal institutions. Some warned against coercion that could backfire, while others argued that decades of gradualism have failed. But there was a striking convergence around one point: the status quo is no longer to be treated as a manageable inconvenience.

The discussion, as reflected in the conference sessions and interviews cited here, was dominated by economists, former senior officials, and political figures warning about the long-term costs of the current model. Representatives of the major Haredi parties were not quoted in those sessions or interviews.

Malach put the warning in the starkest terms. Israel has survived enormous shocks, he said, and remains a wealthy country with a strong economy. But if current patterns continue as the Haredi population grows, the problem will not remain a matter of resentment or budgetary imbalance. It will become a question of manpower, productivity, and national resilience.

“Right now, it’s very hard, but we are handling,” he said. “The point is that if you call today’s situation very bad, things would be worse than that.”

What emerged in Jerusalem was more than an argument over the draft. It was a broader economic reckoning over who serves, who pays, who studies the skills needed for the next economy, and whether the state can continue financing separate rules for a growing part of its population. Israel’s next election may decide the coalition arithmetic. The harder question, raised throughout the conference, is whether any government will be willing to change the arithmetic of the country itself.