Finance Ministry: Only Northern Businesses Will Get War Compensation

The head of the Finance Ministry's budgets division, Kobi Haber, said yesterday that only businesses in the north of the country would receive economic compensation for war-related losses.

"There is no scenario in which we will expand the compensation to businesses not in the north," Haber declared. His remarks were intended to deflect pressure to expand the compensation program on the part of Channel 2 television franchisees, travel agents, airlines and other businesses claiming economic damages brought on by the war.

Haber estimates the final compensation bill at about $3 billion: between NIS 600 million and NIS 1 billion for direct damage to property, in addition to about NIS 2 billion for indirect damages to businesses and workers in the north. This is a rough estimate, based on the assumption that the war will not continue for more than another week.

A $3 billion payout would nearly wipe out the Property Tax Fund's $3.5 billion, and perhaps also incur a budget outlay of the same amount. The Property Tax Fund is an extra-budgetary fund that exists as an accounting conceit only: In effect, the Property Tax coffers are empty. This means that the state will need to find the monies to pay the claimants. The state will have to borrow money to cover the gap, and the national debt will grow by $3 billion.

Since the fund does not actually have money in it, it is not clear whether the outlay for compensation will be considered a budgetary spending item. If so, the entire amount will have to be calculated into the budget, further increasing the expected budgetary costs of the war.

In addition to the compensation, there is the question of the costs of rebuilding the north after the war. Some government officials call for taking advantage of the situation to launch a broad redevelopment program for the north, including infrastructure and education, in a kind of Marshall Plan. Such a plan would cost billions of shekels, in addition to the NIS 6 billion or so in military costs, all of which will put intense pressure on the 2007 state budget.

Haber says that the reconstruction plan will require "appropriate budgetary arrangements," apparently a reference to the economic program that the treasury is expected to initiate after the war.