Prime Minister Benjamin Netanyahu plans to shift funds designated for civilian purposes to military spending to meet any threats from Iran, a government official said on Tuesday.
Netanyahu, in a speech on Monday, did not specify the amount of the funds but said they needed to be moved “now.” Asked about the prime minister’s remarks, the official made clear that no such shift was imminent.
“Until a  budget is passed, no changes can be made to expenditure. Future budgets will have to take the moving of funds into account,” the official said.
It is also still unclear whether Netanyahu or his political rival Benny Gantz will form a new government or if a new round of voting will be needed after inconclusive elections in April and last month.
Limited in power, Netanyahu’s caretaker government has been unable to rein in a budget hole, delaying a Knesset vote of approval on next year’s budget into 2020. Netanyahu has cited growing security considerations in urging Gantz, the Kahol Lavan leader, to join in a broad governing coalition.
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In his speech, Netanyahu accused Iran of seeking the means to turn Yemen into a staging ground for launching precision-guided missiles at Israel and said budgetary priorities needed to change. “To be strong militarily, we have to shift money now from the civilian areas to the military areas,” Netanyahu said.
Israel’s economy has been in a holding pattern amid the political uncertainty for months, and analysts believe the next government will need to trim spending to stick to fiscal targets, but more likely, taxes will rise.
“When it comes to civilian spending, to a very large extent [Netanyahu’s] hands are tied,” said Leader Capital Markets Chief Economist Jonathan Katz. “It sounds like a great slogan but what’s more realistic in interpreting his statement is that defense spending will grow more rapidly than civilian.”
Katz said that about 80% of civilian spending consists of public-sector salaries and those will not be touched. Instead, infrastructure projects might be delayed while subsidies to after-school care for toddlers may be suspended, along with raising taxes.
Cutting civilian spending could also harm growth, since, at 30% of economic output, Israel is second to last in such expenditures among OECD countries, the grouping of the world’s developed economies. In that connection, the Bank of Israel said in a report that with civilian spending so low, “It is difficult for the government to allocate resources for policy measures that will entrench long-term economic growth.”