Much of Israel's Budget Windfall Likely to Go to Defense

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IDF soldiers during a training exercise. The defense establishment says it will have to cut back on training.Credit: Ilan Assayag

Much of the extra cash the government is accumulating – some 28.9 billion shekels ($7.55 billion) this year amassed from unexpected high tax collections and lower-than-budgeted spending – is likely to end up in supplementary defense spending this year.

Prime Minister Benjamin Netanyahu is expected to come under pressure from the defense establishment to appropriate it more funds after it failed to get all the money it had sought for 2015 and 2016. With the wave of unrest gripping Israel and the West Bank, the military brass is likely to demand even more.

The treasury, which has sought all along to contain defense spending, is just as likely to oppose additional money to contain the unrest. Officials contend that the upsurge in Palestinian violence that has characterized the last week or so has been dealt with by the police and Border Police, not by the army.

Finance Minister Moshe Kahlon (L) with Prime Minister Benjamin Netanyahu in the Knesset, July 27, 2015.Credit: Emil Salman

One Finance Ministry official, who asked not to be identified, said that any request for extra defense spending because of the unrest would have to be justified by demonstrable costs.

The size of the windfall was confirmed last week when the Finance Ministry reported that tax revenues showed an unexpectedly big increase in September, despite a slowing economy and a plethora of holidays during the month. As a result, with just three months left to the year, the fiscal deficit is less than 12% of the targeted ceiling. The treasury could allocate as much as 28.9 billion shekels this year and still meet its deficit target.

Treasury officials would like to see some of the windfall from the flood of tax revenues used by civilian ministries, but won’t make an effort to do that until the Knesset approves the 2015-16 budget, which will probably be in the middle of November.

Maj. Gen. (res.) Yohanan Locker, left, presenting his committee's report on the defense budget to Prime Minister Benjamin Netanyahu. Credit: Amos Ben Gershom

As a result, the odds that much of the surplus will get used in the remaining weeks of the year are small and the government will end up with a deficit of just 2.5% of gross domestic product, far less than the 2.9% envisioned in the 2015 budget.

The defense budget remains an open book. The recommendations of the Locker committee on defense reform, which were subject to withering criticism by the army and Defense Minister Moshe Ya’alon, were never formally adopted or rejected after they were released two months ago. Instead, they were given to a team in the Prime Minister’s Office to be examined together with an alternative reform plan proposed by the Israel Defense Forces itself for the years 2016-20. The team, headed by National Security Council chief Yossi Cohen and the PMO Director General Eli Groner, was also supposed to examine spending for 2015-16.

The army was virulently opposed to the Locker proposals, and Defense Ministry Director General Dan Harel did not join the discussions as planned.

However, Netanyahu and Finance Minister Moshe Kahlon – both of whom support Locker – have been quietly holding talks with Ya’alon about implementing the proposals.

At stake is billions of shekels in defense spending over the next years.

The cabinet approved the spending of 56.9 billion shekels for 2015, although government sources say that before the Knesset votes they will seek an additional 5 billion – and 55.9 billion in 2016.

Locker recommended increasing spending to 59 billion shekels for 2016, but only in exchange for significant reforms in areas like army pensions and staffing. But the army wants more: Harel spoke a few weeks ago of no less than 62 billion shekels and Ya’alon said the minimum he can manage with is 64 billion shekels.

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