Gaza Conflict Reportedly Costing Israel $32 Million a Day

Finance Minister Yair Lapid says Israel can cover costs of an extended conflict.

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Israeli Finance Minister Yair Lapid, right, inspects damage in Sderot after it was hit by rocket fired by Palestinian militants in Gaza, July 3, 2014.
Israeli Finance Minister Yair Lapid, right, inspects damage in Sderot after it was hit by rocket fired by Palestinian militants in Gaza, July 3, 2014.Credit: AP

“Protective Edge isn’t a low-cost operation, because there’s no such thing as a cheap military operation. But there’s no price we won’t pay for the citizens of Israel,” Finance Minister Yair Lapid told a meeting of his Yesh Atid party Monday as Israel’s offensive marked its seventh day.

The finance minister didn’t cite any numbers, but sources in Jerusalem estimated the daily cost at 110 million shekels ($32.1 million). They said the army would be seeking extra allocations when the fighting is over to cover the costs, presumably on top of the 3 to 5 billion shekels of additional spending they were seeking before fighting with Hamas broke out.

The hostilities come at a time when the government has been enjoying a sharp increase in tax revenues and a budget deficit lower than forecast for the year. But Lapid faces challenges next year to keep the deficit on target without cutting spending.

The government was due to belatedly begin deliberations of the 2015 budget this week, but officials said Monday they are being deferred until next week at the earliest, while Prime Minister Benjamin Netanyahu focuses on the fighting.

Nevertheless, Lapid expressed optimism that the government could absorb the cost of Protective Edge.

“It’s not because of budgetary constraints that we haven’t entered Gaza to fight a murderous terror organization,” he told Yesh Atid lawmakers. “The Israeli economy is strong enough, and our enemies need to understand our economic strength gives us breathing room and the ability to continue with an extended military operation – even, if the need arises, a wider offensive.”

That assessment was shared by most economists and apparently by the Tel Aviv Stock Exchange, which marked a second day of gains Monday.

“The economic damage, at least for the short term, will apparently be small – a decline in consumption, mainly for leisure and nonessentials,” said Yaniv Hevron, chief economist at Excellence investment house. “But in the longer run, the increase in budget spending is likely to bring less good news for Israelis.”

Hevron warned at the risk to Israel’s offshore natural gas installations if hostilities escalate, and a possible chilling in Israel’s international diplomatic and commercial ties as Palestinian causalities mount.

“Demand for Iron Dome will probably increase sharply, but that won’t compensate for even a small part of the potential damage,” he said, referring to the antimissile system that has worked so well during Protective Edge.

The cost of the approximately 48,000 reservists authorized for call-up last week will come at a direct cost to the government of between 21.6 million and 24 million shekels a day. Reservists are entitled to a minimum of 196.02 shekel a day as of January, up to a monthly maximum of 43,240 shekels, depending on their civilian income.

That doesn’t include the cost to employers from absent workers and the subsequent cost to the economy. Currently, some 42,000 reservists have been mobilized.

The Tax Authority, meanwhile, reported Monday that it had so far accepted about 600 applications for war-related damage compensation, seeking a total of between 25 million and 30 million shekels. The authority’s fund has 5.5 billion shekels available to compensate people and businesses for direct damage from war or national emergencies.

The Second Lebanon War was the first time the fund was tapped extensively, with some 3.6 billion shekels paid out after the month-long conflict. That nearly emptied the fund of reserves, but it has since been replenished as a quarter of all purchase tax revenues are allocated to it.

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