Budget for War: NIS 2.4 Billion

If spending passes that point, the reserve will run out.

The escalation of Israel's campaign against Hamas from air strikes to a ground invasion not only steps up the intensity of the fighting: costs skyrocket as well. To the cost of jet fighter sorties and bombs, add the cost of using armored forces and the Navy, the ammunition and naturally, the cost of calling up tens of thousands of reserve soldiers to active service.

The average cost of a reserve soldier is NIS 450 a day, and that's not including "military" costs such as feeding him. The cost of calling up 10,000 reserve soldiers is NIS 4.5 million and their cost over 10 days is NIS 45 million.

Nor does that factor in the loss to the economy of putting working men into khaki, or, needless to say, the cost of damage to the home front. And this is at a time of slowing economic growth. While Israel's main trading partners have slid into outright recession, Israel hasn't, at least not yet. But the Finance Ministry for one is expecting Israel's economic growth to slow from 5.4% in 2007 and 4.1% in 2008, to just 1% (at most) this year. Nor are its expectations of 2010 much higher.

The Finance Ministry and army refuse to discuss the costs of Operation Cast Lead as long as it's continuing. Without knowing when the campaign is likely to end, it's impossible to calculate costs anyway. But one can hazard educated guesses. Ministry sources estimate that the army's cost in the first week was NIS 700 million.

After the Second Lebanon War, the army demanded NIS 30 billion, of which just over NIS 8 billion was for refurnishing depleted inventory, including of ammunition, and NIS 9.6 billion were for preparing for the next war. The army also demanded a standing budget increase of NIS 3 billion a year.

From 2006-2008 the army got its NIS 8 billion, and regarding the outstanding NIS 22 billion, Prime Minister Ehud Olmert set up a committee headed by David Brodet. On July 29, 2007 the cabinet approved Brodet's recommendations, including to give the army NIS 100 billion more over 10 years. Part of that would be American aid and part, the army cutting flab.

The Brodet panel also ruled that the army had to maintain an NIS 800 million reserve for unexpected events, of which this war is one. The reserve wasn't used in 2007 or 2008 so the army started 2009 with NIS 2.4 billion in reserve. That's a good place to start paying for Operation Cast Lead, but it won't cover the whole cost.

On the civilian front, the indirect damage caused by the rocket barrages is greater than the direct damage.

Direct damage is when a rocket or shell hits your car or property. Indirect damage can include losing days of work because the kids are home from school, and plants shut down.

The Finance Ministry will limit the towns due any compensation for indirect damage, in order to keep its costs under control. Tax commissioner Yehuda Nasradishi pointed out yesterday that expanding the radius of towns eligible for compensation from 7 kilometers outside the Gaza Strip to 20 km, as some suggest, would enormously increase the bill for compensation. The turnover of all the businesses in that 20-km radius is about NIS 50 billion a year, says Nasradishi. Compensation for indirect damage in the form of vanishing turnover could run very high.

As the areas under bombardment shut down and workers are called to reserves, the loss to economic growth could become great. During the Second Lebanon War, economists calculated that the economy would lose 1% to 2% of Israel's gross domestic product. Each 1% of GDP today is worth about NIS 7 billion.

The damage from Operation Cast Lead has been expected to be lesser, but now that Be'er Sheva and Ashkelon are inside the rocket footprint, that could change.