As Fighting Eases, Gaza Conflict Costs Seen Totaling $8 Billion

Three-quarters of the costs seen in Gaza; Palestinians hope donor aid comes through.

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Palestinians walk past the collapsed minaret of a destroyed mosque in Gaza City. July 30, 2014
Palestinians walk past the collapsed minaret of a destroyed mosque in Gaza City. July 30, 2014Credit: AFP

The month of fighting between Israel and Hamas is likely to have cost the two sides a combined $8 billion, three-quarters of it suffered by Gaza, according to Israeli and Palestinian estimates.

For Israel, the costs of Operation Protective Edge are likely to add up about 7 billion shekels ($2 billion), Moshe Asher, the head of the Israel Tax Authority, said on Tuesday. A day earlier, Palestinian Deputy Prime Minister Mohammed Mustafa told Reuters that rebuilding Gaza would cost some $6 billion.

Speaking to Channel 10 on Tuesday, Asher pegged the decline in economic output across Israel as a result of the hostilities at about 4.5 billion shekels.

Tax receipts are also expected to decline by another 1.5 billion shekels, he said. In addition, the government will be providing compensation to businesses that are located within 40 kilometers (24 miles) of the Gaza Strip and suffered direct war damage.

“Our estimates put the damage at 750 million to 1 billion shekels, but I believe the figure will go above 1 billion shekels,” Asher said. “Both the number [of claims] may rise and the amount of compensation the government will be required to pay to likely to rise, but not by huge amounts.”

Hamas rockets and mortar attacks did relatively little direct damage to Israel, but it forced many businesses, especially in the south, to shut down or reduce work hours. The tourism industry was hit especially hard, with many tourists canceling reservations and foreign airlines briefly suspending service.

The direct damage to Gaza is many times worse. Thousands of homes, business and public institutions have been damaged or destroyed while water and electrical infrastructure has been severely damaged. Some 1,800 Palestinians died in the conflict.

Finance Ministry officials have expressed hope that the cost of funding the Israel Defense Force’s outlays in the fighting — an amount that reached as much as 200 million shekels a day — can be covered by reallocating funds in the 2014 budget rather than carrying over costs into 2015.

Finance officials have put the government’s war costs at 4 billion shekels for defense and 2 billion for civilian expenses. “Right now, talks are being held to assess Protective Edge’s costs. When we have something concrete, we will examine what alternatives we have,” a treasury official said Tuesday.

Asher said Finance Minister Yair Lapid is determined to avoid tax increases next year. He said Lapid’s plan to eliminate the value-added tax for many home purchases would not be rescinded or postponed, even though it is expected to deprive the government of some 2.4 billion shekels in tax revenue every year it is in force.

”The finance minister stands behind it and will bring it to [the Knesset] for approval soon,” Asher told Channel 10. “Like everything else, this issue, too, we will find the necessary fiscal solutions. The government can cope with the cost of zero VAT on new homes.”

Palestinian estimates put the number of Gazans who have lost their homes as high as 400,000, Mustafa said. “Once a cease-fire is reached, we will have to tackle the immediate problem of rehousing those who lost their homes,” the Palestinian deputy prime minister said.

After Israel’s 2009 Operation Cast Lead, only a fraction of the nearly $5 billion in funds promised at an international conference actually reached the enclave. Mustafa said that this time Palestinians are hoping donors will make good on aid pledges.

Aid was blocked last time because Western governments’ designation of Hamas as a terrorist group effectively blocked donor funds. But last April, Hamas and Palestinian Authority President Mahmoud Abbas signed a deal that led to the formation of a unity government of technocrats.

“Attracting money should be easier now through the unity government,” said Maher al-Tabbaa of the Gaza Chamber of Commerce. “Excuses made in the past by international donors, such as the internal division [of Palestinians], are no longer valid.”

On the Israeli side, Asher said property damage sustained in the fighting would come to about 50 million shekels. At this point, he said, about 2,500 property-damage claims had been filed, not including a major volley of rockets fired from Gaza Tuesday morning prior to the 8 a.m. ceasefire.

The figure could rise even if the fighting is not resumed, he said, as farmers whose fields are close to the Gaza border discover additional losses and as Israelis who have been away from home during the fighting return to find their homes damaged.

On the other hand, Asher said, Iron Dome, Israel’s rocket-interception system, not only helped maintain the population’s resilience but also spared the country direct property damage and indirect economic costs.

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