Cabinet Approves $560 Million Civilian Budget Cut to Help Fund Protective Edge

IDF will get most of the savings in first salvo of emerging battle over defense spending for 2014 and 2015.

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A man inspects the damage to a house following a rocket attack by militants from the Gaza Strip in the southern Israeli town of Sderot, on July 3, 2014.
A man inspects the damage to a house following a rocket attack by militants from the Gaza Strip in the southern Israeli town of Sderot, on July 3, 2014.Credit: AFP

Meeting in the tiny communal settlement of Bat Hadar between Ashkelon and the Gaza Strip, the cabinet on Sunday approved 2 billion shekels ($560 million) in across-the-board civilian budget cuts to help pay for the cost of Operation Protective Edge.

The meeting, held in the village as a sign of identification with the people of the south after they endured more than 50 days of Hamas rocket attacks, marked the beginning of what promises to be a wrenching debate over the 2015 budget – in particular over how much will be earmarked for defense spending.

Prime Minister Benjamin Netanyahu, who proposed the 2 billion-shekel package in coordination with Finance Minister Yair Lapid and Defense Minister Moshe Ya’alon, signaled his view that military spending would have to increase to fill what he termed “gaps” in Israel’s defense.

“Security is first and foremost in the order of priorities. We have done very great things here, but this requires us to make a redoubled effort to allow the IDF, the Shin Bet security service and the security apparatus to continue to efficiently protect the State of Israel,” Netanyahu said.

Ministers approved transferring 1.5 billion shekels of the savings – which amount to 2% of the combined budget of all the civilian ministries – to the Defense Ministry, with the remaining 500 million shekels going to help Sderot and the other towns surrounding Gaza to recover from the fighting.

Only two ministers opposed the move – Environmental Protection Minister Amir Peretz (Hatnuah) and Housing and Construction Minister Uri Ariel (Habayit Hayehudi). Two other Habayit Hayehudi ministers – Economy Minister Naftali Bennett and Pensioner Affairs Minister Uri Orbach – abstained, as did Likud’s Silvan Shalom.

The money it received on Sunday is only part of the 9 billion shekels the Defense Ministry is seeking to cover the costs of Operation Protective Edge. The ministry is also asking for an 11 billion-shekel increase in next year’s budget, not including an expected future one-time budget supplement due to the conclusions of Operation Protective Edge.

But treasury officials made it clear over the weekend that they regarded the Defense Ministry’s demands excessive, especially coming as they are struggling to prevent the deficit from rising too much next year. They said such spending would put a drag on the economy similar to the so-called “lost decade” of 1973-85, when heavy military spending was a major factor in chronically slow economic growth.

Finance Ministry Director General Yael Andorn said that the 11 billion shekels the Defense Ministry is seeking would eat up all the authorized 8 billion-shekel rise in total spending for next year, and leave the treasury scrounging for another 3 billion shekels. But the defense establishment was already one step closer to its goal following Sunday’s vote, which designated the 1.5 billion-shekel supplement as part of its annual base budget.

In addition to extra military spending, Netanyahu promised that the cabinet will allocate 1.5 billion shekels in the next five years to Israeli communities located near the Gaza border. Next month, he added, the cabinet will be asked to approve a similar plan to support all southern residents.

The Knesset Finance Committee will meet in the coming days to approve the spending cuts voted on by the cabinet. In theory, the government has a large majority in the committee with 11 members, compared to six for the opposition. But four coalition lawmakers, among them committee chairman Nissan Slomiansky (Habayit Hayehudi), said they will not automatically support government legislation.

“In the government they seem to think that they can present the committee with a spending cut and everybody will support it. But it isn’t that way. We won’t allow reductions in the health and welfare budgets,” Slomiansky said.

Meanwhile, Lapid and Bank of Israel Governor Karnit Flug met on Sunday to iron out personal and policy differences over the budget and related matters. The meeting came at Lapid’s initiative on Friday, a day after the central bank issued a sharp critique of his plan to widen the 2015 budget deficit to more than 3% of gross domestic product.

Lapid supported Flug’s nomination to the top job at the central bank, but since then she has been critical of both his fiscal policy and his plan to exempt first-time homebuyers from value-added tax, the centerpiece of his strategy for reining in rising home prices.

Sunday’s joint statement by the two didn’t reveal anything substantive. “A number of issues were discussed, among them the matter of the budget framework for 2015,” it read. “The minister and the governor stressed the importance of a good and continuing working relationship … and agreed to further dialogue.”

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