Let’s start at the bottom line - the discussion about what Israel can do with its surplus tax collection is purely theoretical. The government doesn’t really have an extra 10 billion shekels. At most, it has a deficit that’s slightly smaller than expected.
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The Finance Ministry can decide to keep the deficit at the original cap - 2.9% of GDP. It can use the unexpected windfall, which came from taxes on the Mobileye deal and from so-called wallet companies, which are those belonging to high-earning individuals to shelter their salaries from tax payments, to lower taxes or to decrease the national debt. If it wants to increase expenditures, and that’s already another matter, then it will need to cover the entire expense or find additional revenue sources, such as dividends from government-owned companies or selling government assets. Or it could simply move money from one budget item to another.
In this regard, the sentiment that the Finance Ministry and Finance Minister Moshe Kahlon are creating is an own goal. When the finance minister declares that there are excess tax revenues, he’s increasing the appetite of the other ministers and those sectors that are demanding money, including disabled citizens, police officers, teachers, universities and of course that one player who always wants more and more and more - the defense establishment.
Defense Minister Avigdor Lieberman has been dropping hints for months now that the defense budget needs an extra 4.5 billion shekels. His explanation is that Israel needs to prepare for the threats being created by Iran's presence in Syria. Israel benefited for years from a Syria weakened by civil war, but Bashar Assad has consolidated his rule there via Russian and Iranian intervention. Assad is not much of a threat to Israel on his own, following the years of bloodletting, but the Iranian presence there very much bothers Israel’s defense establishment and Prime Minister Benjamin Netanyahu, who has warned about the “Lebanonization of Syria.”
There is a consensus in Israel that Syria is turning into an Iranian base, changing strategic situation, which is the pretext for Lieberman’s demands. But two years ago, the Finance Ministry and the Defense Ministry agreed on a fixed, five-year defense budget. The defense establishment promised that the moment that budget was approved, it would not make further demands. The Israel Defense Forces even took preparatory measures such as limiting thousands of positions from the standing army, shuttering units and cutting back the fat that had developed over the previous decade. The agreement was intended to ensure certainty and stability for the defense establishment, as well as to improve its public face after developing a reputation as a money-gobbling monster that kept funds from social services.
So how is it that the defense establishment is suddenly demanding billions more? Are the IDF and its chief of staff, Gadi Eisenkot, behind these demands? Senior public servants say that Eisenkot himself is uncomfortable with these demands, given the agreement.
Kahlon is close to Eisenkot, and such a demand could increase tension between them. Eisenkot has praised Kahlon for his willingness to listen to the IDF’s needs. But the army may be trying to have it both ways - it’s not the IDF demanding the money per se, but rather its intelligence chief, Herzl Halevi, pressing Netanyahu. Netanyahu is known to hate security risks and is willing to invest billions to address them.
Lieberman, meanwhile, was not party to the budget agreement two years ago. It’s doubtful if this is enough to convince the Finance Ministry to reopen the agreement, fight with other ministries and find the billions Lieberman is demanding.
Kahlon knows about the new strategic threats in Syria, but remains unwilling to discuss increasing the defense budget. The defense establishment has its well-known ways of fear mongering in order to soften finance ministers’ resistance. It always happens in a room with maps marked up with lots of arrows, and with frightening scenarios that would make any sane person whip out his credit card and offer that they take the money in 12 easy installments.
The question is whether in this situation, any other budgetary demands - and there are plenty - have a chance.
And then there’s Kahlon himself. His faith in Netanyahu has been destroyed following the public broadcasting affair, which showed that Netanyahu was willing to go to elections over such an issue. Ever since then, Kahlon, too, has been acting like he’s preparing for elections. We saw that with his haphazardly drafted Neto Mishpacha tax plan, which was supposed to increase the money available to the middle class, as well as the extensive PR surrounding the Mehir Lemishtaken program for reduced-cost housing.
Kahlon heads one of the caolition's six parties, and he’s not a member of Netanyahu’s Likud or Lieberman’s Yisrael Beiteinu. Furthermore, he was very generous in the defense deal two years ago, and was even criticized for it. All this will make it difficult for the defense establishment to squeeze more money out of him. This is partly why Netanyahu's chief of staff, Yoav Horowitz, and Finance Ministry director general Shay Babad asked the Jewish National Fund to give the government funds that have accumulated in its accounts due to “the new security threats.” They most likely were talking about defense establishment demands; “We need it for the disabled” doesn’t sound quite so convincing or Zionistic.
That’s another trick the defense establishment uses. Go face off against hazy defense needs that only a few people are fully briefed on. It yet again creates the appearance of balancing “life itself” against Israelis’ mere quality of life.
Generally speaking, the feeling of urgency created by the defense establishment trumps the less-urgent atmosphere surrounding other needs. The person who can change this is Kahlon. He’s fully briefed, and some say he tends to slip out of the room when the discussion moves to the new Iranian threat in Syria, and the accompanying monetary demands. “He doesn’t want to hear it,” says one senior public servant.
The question is how long Kahlon can stand up to the pressure. He has other, better ideas as to how to use the 3.5 billion shekel budgetary reserve. That money is due to be allocated next month; in the meanwhile, demands are at least three times the available sum. Let’s see if anything can trump the defense establishment’s skill at swallowing up every available shekel.