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Tank illustration Photo by Emil Salman
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Defense spending exceeded its budget last year for the sixth time in a row, according to a Bank of Israel report released yesterday.

The report, prepared by the central bank’s research division, stated that the defense establishment overspent its budget even though there were no ajor security incidents, such as a war.

Defense is the largest single item in the state’s budget.

The report, “Economic Developments in Recent Months ‏(Sept.-Dec. 2010‏),” states that while most ministries spent less than their allocated budgets ‏(after adjustments‏), defense expenditures significantly exceeded the original budget. The researchers included defense-related spending from budget reserves.

This has become a regular occurance, the report states. In the past, overspending was attributed specifically to unplanned events such as Operation Defensive Shield in 2002; the Second Lebanon War in 2006; and Operation Cast Lead at the end of 2008 and the beginning of 2009.

The central bank report said the excess spending was difficult to explain in both 2009 and 2010, because the 2009 budget was approved after Operation Cast Lead and there have been no major, unexpected incidents since then. Overspending increased over these two years.

‘Ministries aren’t balancing spending’

The report also took other government ministries to task for not balancing their expenditures over the first and second halves of the year.

In 2010, 48% of government expenditures were made in the first six months of the year and 52% in the second six months. The report says the seasonal variation in government spending should have been moderated by the two-year budget, in part because ministries would have more knowledge about their budgets over a longer period of time.

In ministries other than defense, 15% of outlays occurred in December alone. Only 10% of defense expenses, however, were incurred that month.

The report also noted that major economies around the world were recovering from the crisis, but said that generally, growth in these countries was slower than in Israel.

The Bank of Israel report noted that between September and December 2010, the Israeli economy continued to grow. The output gap − the extent to which output was less than full capacity − nearly closed, and private consumption increased. Investment grew impressively, after declining during the global crisis of 2008 and 2009.

The country’s gross domestic product grew at an annualized rate of 7.8% in the fourth quarter, in keeping with increased demand, which the report said was broad and included investment and private consumption, including investment in durable and non-durable goods. Business product increased for the fourth quarter by an annualized 8.9%, the report said.

Local economic expansion during the last four months of the year also improved employment figures, with workforce participation hitting record levels, the report said. Unemployment dropped, as did the number of people who were working part-time due to a lack of full-time employment.

The central bank said the rapid growth in private consumption as well as other positive indicators show that Israelis are optimistic.