Bank of Israel Determines: Defense Did Not Exceed Its Budget - Until 2011

In light of reforms proposed by Trajtenberg Committee, Bank of Israel weighs option of cutting defense budget; thinks it can be cut by a few billion shekels.

The money for implementing the reforms proposed by the Trajtenberg Committee on socioeconomic change was supposed to come mostly from cuts in the defense budget, some NIS 3 billion. But after years of public disputes between the Defense Ministry and the Finance Ministry over whether the former has overspent vis-a-vis its multiyear budgetary framework - the Bank of Israel is weighing in with its own decisive opinion. And it thinks the defense budget can be cut by a few billion shekels.

A study by the central bank's research department has actually found that both sides are right, at least in part. It shows that until this year, the Defense Ministry had only slightly overspent the money agreed to in the Brodet committee framework of multiyear spending, but 2011 has been different.

Ehud Barak, Benny Gantz August 18, 2011 (Ariel Harmoni)
Ariel Harmoni, Defense Ministry

The Defense Ministry exceeded its budget by NIS 500 million a year from 2008 to 2010, a relatively small deviation by defense standards. But in 2011, this amount jumped to NIS 3 billion.

The figure for 2008-2010 - an accumulated excess expenditure of NIS 1.5 billion - also included additional funds allocated after Operation Cast Lead in Gaza in early 2009.

The central bank's position is a direct contradiction to that of the treasury, which claims there was NIS 9 billion in overspending during the same period.

The difference is based on conflicting interpretations of the Brodet committee recommendations. The Bank of Israel agrees with the Defense Ministry that based on them, its budget was supposed to be adjusted upward every year by 1.3% in real terms after inflation, while the treasury bases its budget numbers on nominal increases - in other words, not taking inflation into account.

But the differences in 2011 are not just due to inflation, and the central bank did agree that defense expenditures were over the mark by some NIS 2-3 billion.

The significance of this is that there can be budget cuts of this amount in the defense budget.