Finance Ministry Struggling to Meet Defense Ministry Budget Demand for Extra $3b

Finance Ministry can't make the math add up if Defense Ministry gets the record $22 billion it wants.

Moti Bassok
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Yair Lapid at Sapir College, Sderot, September 3, 2014.Credit: Liron Bouzaglo
Moti Bassok

Prime Minister Benjamin Netanyahu, Defense Minister Moshe Ya’alon and Finance Minister Yair Lapid will be meeting early this week – apparently Monday – with their senior aides to consider the security establishment’s demand for an 11 billion shekel ($3 billion) increase in next year’s defense budget.

Finance Ministry officials said over the weekend that, no matter which way the budget draft is reconfigured, the numbers simply don’t add up if the 11 billion is fully included.

At the beginning of this summer’s fighting in the Gaza Strip against Hamas and its allies, Lapid appeared on television in his characteristic style and told the Israel Defense Forces that the army should do the best job it can without thinking about the cost. He reasssured them that he and his ministry staff would see to it that all the costs of the operation were covered when it was all over.

The war is now over, but Lapid and the senior staff at his ministry are having a hard time writing the check for the 9 billion shekel bill they were presented with by the defense establishment for the reported costs of the operation, and the additional 11 billion shekels requested for the 2015 defense budget.

Netanyahu has already hinted several times recently that there will be further costs: for research and development of tunnel-detection technology for the Gaza border area, where a network of Hamas attack tunnels were found and destroyed; and billions of shekels for anti-missile defense systems for tanks and armored personnel carriers, and for other needs that the fighting revealed.

And that’s without considering the conclusions forthcoming from the Locker Committee, an official panel (headed by Harel Locker) that’s assessing the needs of the defense budget for 2016 through 2025, which, based on past experience, could cost an additional bundle. For example, a similar panel – the Brodet Committee – recommended an increase of 100 billion shekels for defense between 2008 and 2017.

Now, Lapid’s rhetoric has changed as he speaks of the need for efficiency measures and reforms, and cuts in the military. Finance Ministry officials are warning of a return to the so-called lost decade of slow economic growth, from 1974 to 1985, unless the government handles things responsibly.

If the defense establishment’s demands for this year and next are met – and they almost certainly will be – defense spending for 2014 and 2015 will break all prior records, and reach levels that defense officials couldn’t have dreamed of a few months ago.

This year’s defense budget will total nearly 72.5 billion shekels.

The amount is comprised of the following: The 2014 budget approved by the Knesset in July 2013, including spending lines that are conditioned on the generation of income to pay for them, comes to 57.7 billion shekels. In October 2013, the security cabinet added another 2.75 billion shekels to the budget. Then there’s the 9 billion for this summer’s military operation (1.5 billion of which has already been transferred following a cabinet decision last Sunday), plus another 3 billion shekels added during the year. In recent years, the annual defense budget has exceeded 60 billion shekels, while in the first decade of this millennium it was between 50 and 60 billion shekels.

So far, the Finance Ministry has kept its own 2015 defense budget proposals a closely guarded secret, out of concern that the ministry would come in for pressure from the prime minister and Ya’alon to increase it.

The thinking, however, is that the 2015 budget will be remarkably similar to this year’s ultimate allocation and come in at about 72 billion shekels. And over the course of the next year, based on the conclusions drawn from this summer’s fighting and the Locker committee recommendations, it can be assumed that the final defense budget for next year will come in at about 80 billion – or even higher.

The net defense budget next year – based on a security cabinet decision from two years ago and a Finance Ministry budget-division decision before this summer’s fighting – will be 53 billion shekels. There are expenses conditioned on income of about 8 billion, as well as the defense establishment’s request for an additional 11 billion shekels.

Ya’alon said last week that in relation to the country’s gross domestic product, defense spending has actually declined to 5%. Before this summer’s hostilities, the Defense Ministry was talking about military spending at 4.6% of GDP this year and 4.5% next. The defense minister was wrong. He forgot that 2014 is far from over and that the defense budget has been soaring, with a 14.75 billion shekel supplement – 25.6% beyond the defense budget approved by the cabinet and Knesset if the military gets what it’s asking for in connection with the cost of the summer’s hostilities.

With the supplement for Operation Protective Edge (the IDF military operation in Gaza), 2014 defense spending will also constitute 18% of the government’s budget.

Assuming that this year’s total economic output is 1.04 trillion shekels, defense spending for the year should be about 6.9% of GDP – much higher than the 5% about which Ya’alon spoke.

The last time the country’s military spending was 6.9% of economic output was eight years ago. High defense expenditure makes it difficult for Israel to compete in the international financial market with countries with relatively lower defense costs (although, of course, to a great extent Israel’s defense costs are a product of its geopolitical situation).

It also comes at the cost of reduced spending on education, social welfare, infrastructure and health-care spending.