Three months before the end of the 2013 fiscal year, the defense budget has been reopened, and the planned NIS 3 billion budget cut probably won't happen. The bitter argument between the Ministry of Finance and the Ministry of Defense over the 2013-14 defense budget has resumed.
The Ministry of Defense believes that the defense budget cut is not NIS 3 billion, but NIS 7 billion, and is therefore demanding a supplement of NIS 4-4.5 billion.
This is a huge gap; if Prime Minister Benjamin Netanyahu decides in favor of the Ministry of Defense, the state budget will not be closed and more budget cuts will be needed to meet the spending cap. The net defense budget (excluding income) was NIS 53.7 billion in 2012, and should have fallen to NIS 52.5 billion in 2013 and NIS 51 billion in 2014. This will not happen.
Back on July 22, Minister of Defense Moshe Ya'alon told the Knesset Foreign Affairs and Defense Committee that the defense plan for 2014 was not financed. The Ministry of Defense says that the "jump" in the defense budget cut from NIS 3 billion to NIS 7.3 billion was due to changes "which cannot be controlled", including cost hikes, more handicapped veterans, more IDF pensioners, and higher arnona (local property tax) and electricity bills. These changes reduced the IDF's budget from NIS 29 billion to NIS 22 billion. Ya'alon said at the time that he was prepared to absorb a NIS 3 billion budget cut, but that he wanted a NIS 4 billion supplement.
The Ministry of Defense also says that since part of the budget is inflexible (cannot be cut), such as salaries, pensions, and rehabilitation, the cuts, if any, must be made in the budgets for training and weapons.
Data published by the Ministry of Finance's Accountant General, the defense establishment's pensions budget was NIS 4.95 billion in 2012, the rehabilitation budget was NIS 2.55 billion, and payments to families exceeded NIS 2.4 billion.
"Anyone who claims that the defense establishment has retreated from the NIS 3 billion budget cut is mistaken. The defense minister said that he assumed the NIS 3 billion cut, and did so. But a NIS 4.5 billion gap opened up on the way, and this has not been agreed to," a defense source told "Globes". "The attempt to present the defense establishment as unwilling to bear the burden is mendacious. The defense minister is insisting on laying off 4,000 IDF career personnel and civilian workers. He is changing the face of the army, disbanding brigades, and cancelling delegations overseas. This is an attempt to divert discussions."
It's all terribly ridiculous
The Ministry of Finance rejects this position outright, saying that there is no such thing as a "inflexible budget". "There will be no choice by to cut salaries, pension commitments, and rehabilitation. It's unacceptable that the IDF chief of staff grants a 6% pension hike for the three years of career service, but cannot cut when there is no money. This explanation, that it's not possible to reduce IDF pensions, but that it's possible to affect Israel's security, is utterly unacceptable," a top Ministry of Finance official said. The ministry added that the salary, pension, and rehabilitation component of the defense budget has climbed steadily in the past 20 years to 65% of the budget, and that it would continue to grow in the coming years, which means that there is no choice but to reduce it.
"Nothing has happened in the past two months to change the results. There was no incident that changed pensions. Everyone knew the numbers. It's all terribly ridiculous, because everyone has known the numbers for months. How did they reach NIS 7 billion? What happened? What's changed? It's also obvious that there is no source for this amount," said a Ministry of Finance source today.
In the latest round of talks, the Ministry of Defense came up with a new gimmick: registering the pension and rehabilitation part of the defense budget as part of the Ministry of Finance's budget, and deleting it from the defense budget. The Ministry of Defense says that the pension budget for a retired teacher is not borne by the Ministry of Education, and that the same rule should apply to IDF personnel.
Senior Ministry of Finance rejected this proposal, saying that while a teacher's pension is recorded under the Accountant General's Pension Administration, the Accountant General sets the pension. The Ministry of Defense proposes to record IDF pensions in the Ministry of Finance's books, while the IDF chief of staff will have the sole authority to set these pensions. Minister of Finance Yair Lapid is prepared to assume the IDF's pensions, but only if the Ministry of Finance sets them as it does with all other pensions of government employees.
"The army should not deal with pensions and discounts at the supermarket. No other ministry manages the pensions of its employees. This effectively turns the administration into a workers committee," said one of Lapid's aides. On this point, the Ministry of Finance is demanding that the Ministry of Defense reduce pensions, rehabilitation, and salaries.
"It is obvious that if the Ministry of Defense continue to set pensions, but the Ministry of Finance pays them, this is a clear incentive to raise pensions," said the Ministry of Finance.
The conceptual conflict between the ministries is nothing new, and is repeated every year; the issue at the heart of the dispute is whether the budget is a real budget (how much the budget can buy) or a nominal budget.
Published by Globes [online], Israel business news - www.globes-online.com - on September 30, 2013
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