Defense Burden Hit Record Low in 2012 Before Latest Spending Hikes

Military budget amounted to just 5.6% of GDP, but will likely rise to 6.5% this year and next

Reuters

Israel’s defense burden – the percentage of gross domestic product devoted to security spending – fell to its lowest ever in 2012, according to a Central Bureau of Statistics study released last week that documents expenditures.

The statistics bureau estimated that defense spending took up just 5.6% of GDP in 2012, marking a decade-long decline. In 2002, in the midst of the second intifada, defense spending accounted for 9.2% of GDP, but by 2008 it was down to 6.5% and continued to fall in subsequent years.

Indeed, over the 62 years covered by the study, only in two – 1953 and 2011, when it was equal to 5.7% of GDP – did defense spending account for such a small section of the economy.

In the state’s early years, from 1956 to 1975, the defense budget soared by an average of 16% annually. In 1956 alone it doubled due to the Sinai War, and jumped 77% in 1967, the year of the Six-Day War.

The defense burden peaked in 1975, two years after the Yom Kippur War, at a giant 30.3% of GDP. It declined thereafter, except during the 1982-84 first Lebanon war. It also climbed from 1996 to 2002.

The decline in defense spending, however, is only in relative terms. In shekel terms, the defense budget has grown – from 49.6 billion shekels annually in 2008 and 2009 to 55.9 billion shekels in 2012. But Israel’s economy was growing even faster in those years, leaving the country with a shrinking defense burden.

The CBS study comes on the heels of a huge battle between the defense establishment and the treasury in recent months over military spending this year and next.

The army sought big increases to cover the costs of Operation Protective Edge and the challenges it faces from regional turmoil, most notably the Syrian civil war. The treasury insisted that in a slowing economy it couldn’t raises taxes or cut civilian spending, and that the army would have to make do with less.

The debate involves more than the budget. A heavy defense burden makes the Israeli economy less competitive, hurting its ability to export. Even with the decline in relative military spending over the decade to 2012, Israel’s defense burden is two to six times as much as other industrialized countries and more than any other country in the war-torn Middle East.

In Jordan only 4.8% of GDP is devoted to defense and in Egypt just 1.9%, although the Gulf emirate of Oman spent 9.5% in 2011. In Europe, Germany allocates just 1.1% of GDP to defense, France 1.8% and Japan 0.8%, according to CBS figures.

What the CBS report doesn’t say, because it only covers the years to 2012, is that the defense burden will this year and next shoot up to an estimated 6.5% of GDP.

The dispute was settled with the Defense Ministry getting an extra 13.75 billion shekels this year and an extra 6 billion shekels in 2015. The 2015 defense budget will reach a record 71.45 billion shekels under the current spending plan, which has yet to be approved by the Knesset.

Without that extra spending the army won over recent weeks, Israel’s defense burden would have continued to shrink. Defense Minister Moshe Ya’alon said a few weeks ago as he was making the case for an increase in the army’s budget that the defense burden was likely to fall to just 5% this year. Before Protective Edge, the Defense Ministry had estimated it would fall to just 4.6% and to 4.5% in 2015.

Israel’s actual defense burden is higher than the baseline CBS figure, which only takes into account direct military spending. After adding in costs such as constructing bomb shelters, civilian security spending such as the police and losses to the economy from war and terrorism, security costs were 69.4 billion shekels rather than 55.9 billion shekels. That amounted to 7% of GDP – 25% higher than the baseline figure.

Even the enlarged defense burden, the CBS acknowledged, doesn’t include security-related costs such as pensions for defense personnel, rehabilitation costs for the injured, allowances for families of war dead and subsidies for the defense industry.