Relations between the Ministry of Defense and the Ministry of Finance have been peaceful in recent years, following a budget agreement in late 2015 between Minister of Finance Moshe Kahlon and then-Minister of Defense Moshe Ya'alon. This agreement, however will expire soon. Under new Chief of Staff Aviv Kochavi, the IDF is preparing a new five-year plan, entitled Tnufa, which calls for a substantial defense budget increase, and tensions are likely to rise as a result.
Kochavi's plan envisions a build-up of forces, but the Ministry of Finance is determined to regain control over the ballooning budget deficit. Informed sources believe that a clash is unavoidable.
What are the main disputes between the Ministry of Defense and the Ministry of Finance?
2019 is the next-to-last year of the Gideon five-year plan under which the IDF has been operating since 2015, and which is a key element in the Kahlon-Ya'alon agreement. The defense budget for this year is NIS 72.5 billion, including $3.3 billion in US military aid.
Although the Gideon plan will end only next year, Kochavi, who replaced Gadi Eizenkot as chief of staff in January, will present the new multi-year plan which he is putting together this summer to the ministers in the new government, so that it can be put into effect starting in 2020. The plan being formulated by the general staff is meant to reflect Kochavi's vision, at the center of which is "readiness and change," while "making the army more lethal" in combat through a clear priority for the operational end, strengthening combat units, and allocating the resources that this requires. At the same time, the plan also includes the founding of a common multi-branch targets administration for the intelligence corps, the air force, and area commands aimed at improving the quality and quantity of targets in warfare.
In preparation for launching Tnufa, Kochavi has already sent members of the IDF general staff for three days of brainstorming at the Glilot camp in what has been described as a "victory workshop." The senior officers discussed ways of fighting on the current and future battlefield in order to make victory on it sharp and clear.
Even before completing Tnufa, Kochavi has already ordered procurement of new anti-tank missiles and unmanned aerial vehicles (UAVs), so that they will be available for use by IDF units in the near future.
The dissolution of the 21st Knesset and the scheduling of new elections for September, however, are significantly delaying the chief of staff's plans. His new Tnufa plan will be presented to the government in December at the earliest. Even if things go smoothly and the next minister of defense supports Kochavi's plan, it will not get underway before approval of the next state budget, which is likely to be in March 2020. In any case, implementing Kochavi's operational concept will cost money, and the demand for a substantial budget supplement will play a key role in the discussion between the IDF, the Ministry of Defense, and the next government.
You want more money? Cut costs
The negotiations between the Ministry of Finance and the IDF have not yet officially begun, but sources inform "Globes" that the two sides are engaged in constant dialogue. The Ministry of Finance realizes that an increase in the defense budget is unavoidable, but beyond the question of the size of the increase, the Ministry of Finance wants as much as possible of it to be paid for by internal IDF streamlining, not by the state budget.
The Ministry of Finance's main bargaining chip in the negotiations with the Ministry of Defense will be its agreement to guarantee the defense budget five years ahead, a unique privilege granted to the Ministry of Defense in 2015. The Ministry of Finance has been greatly criticized for this agreement by Prof. Avi Ben Bassat, among others.
Several months ago the Ministry of Finance prepared a list of possible streamlining measures for the IDF. The Ministry of Finance believes that these measures will save billions of shekels, which can be used to increase the defense budget and pay for the army's build-up of its forces. The Ministry of Finance's main demand in this context is immediate implementation of the second installment of the Ben Bassat Committee's 2006 recommendations for shortening compulsory IDF service. The committee recommended a differential shortening of men's compulsory military service, so that soldiers that the IDF wants to release will serve only 24 months, while soldiers whom the IDF wants to retain will serve 28 months and receive salaries during the four extra months that will be equal to the average pay received by demobilized soldiers.
The Ministry of Finance is relying on a study by Prof. Joseph Zeira, which found that shortening men's compulsory army service by one month increases GDP by 0.1%, amounting to NIS 1.3 billion annually. In addition to shortening compulsory IDF service, the Ministry of Finance wants to restore the arrangement for reducing the pensions of IDF pensioners working in the public sector. Under this arrangement, which was canceled in 2012, a pensioner lost up to one third of his pension if he worked in the public sector. This rule is likely to apply to three former IDF chiefs of staff in the Blue and White Party, for example, who receive both member of Knesset salaries and IDF pensions. Former Ministry of Finance deputy budget director Ofer Margalit told "Globes" that this would save the state NIS 250 million a year.
Government sources mention an exchange of messages taking place on this matter between the Ministry of Finance budget department and the Ministry of Defense, including financial adviser to the chief of staff and IDF budget department director Ariella Lazarovich.
The IDF is likely to absolutely oppose shortening military service for men on the grounds that this will detract from its readiness and fitness for war.
Another possible cost-cutting measure previously proposed by the Ministry of Finance is completion of outsourcing the IDF vehicle fleet, so that members of the career army with personal vehicles will use vehicles rented from leasing companies, instead of military vehicles.
Ministry of Finance against Netanyahu's private budget
Another source of friction in the defense budget concerns the prime minister's expectation of a NIS 4 billion chunk separate from the defense budget, for a decade. This separate budget is designed to facilitate implementation of the plan that Prime Minister Benjamin Netanyahu presented a year ago to the security cabinet under the heading "The 2030 Defense Concept." It involves authority to pay for defense expenses without approval from the chief of staff and the minister of defense. This NIS 40 billion item over 10 years is to be used for classified defense spending by all of the defense and intelligence branches, including improving and expanding Israel's attack capabilities, enhancing anti-missile defense, cyber capabilities, etc. The Ministry of Finance can be expected to strongly oppose this demand on the grounds that two separate defense budgets are unacceptable.
Despite criticism by economists, senior figures in the Ministry of Finance and the Ministry of Defense praised the multi-year budget. The Gideon plan, which expires at the end of the year, marked the first time that the Ministry of Defense and the Ministry of Finance worked according to plan from beginning to end and provided the Ministry of Defense with multi-year budget certainty. Such certainty makes it possible to plan procurement and expenses in the long term, together with training and regular activity.
The Ministry of Finance also benefits from a multi-year defense budget, because it means that the Ministry of Finance will not demand defense budget increases, except for emergencies and war. Both ministries benefit from the absence of the free-for-alls over the annual defense budget that formerly characterized relations between them. Both ministries emerged bruised from these battles: members of the career army serving in positions on the home front were portrayed as "robbing the public treasure" because of their fat pensions, while the Ministry of Finance's boys were described as harming the IDF's operational capabilities and readiness for war.
What is the dispute about?
The Ministry of Finance is demanding:
1. Shortening compulsory military service for men to 24 and 28 months (implementation of the second stage of the Ben Bassat Committee's plan). Every month deducted from compulsory army service increases GDP by NIS 1.3 billion a year (0.1%).
2. Deducting up to a third of the pensions of IDF retirees working in the public sector. Projected saving: NIS 250 million a year.
3. Other items: Completion of outsourcing the IDF vehicle fleet, sale of communications frequencies, sale of real estate properties, making energy consumption more efficient, saving on food. Projected saving: hundreds of millions of shekels a year.
The IDF's view:
1. A demand for a new multi-year plan. The Tnufa plan being formulated by Kochavi is designed to provide budgetary certainty and the ability to plan for 2020-2025. It will add billions to the defense budget.
2. Strengthening the IDF's operational edge: enhancing the army's lethalness in future warfare, and the establishment of combined forces of infantry, anti-tank forces, air force, and intelligence. This involves a special budget for procurement of new weapons.
3. Opposition to shortening men's compulsory military service. The IDF is concerned that this will detract from readiness and fitness for war.
Published by Globes, Israel business news - en.globes.co.il - on July 8, 2019
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