Israel's defense doctrine has been composed twice since the state was founded, they inform us at the Prime Minister's Office. The first time, it was composed by David Ben-Gurion, and the second, by Benjamin Netanyahu. The two documents have something interesting in common: they are both written in pen. Netanyahu's document does not exist on any computer system, because of the prime minister's fear of espionage and leaks. The cyber threat is a dark shadow hovering over Netanyahu's defense doctrine. Serious people who have seen it testify that it made them change their minds about the extent of the threats to the security of the country. Asked to elaborate, they list three main threats: cyber, cyber, and cyber again.
The bottom line of this document is no secret: the defense budget will grow, and substantially so, from 2019. This conclusion was missed by the analysts from rating agency S&P, who estimated that the trend of a shrinking defense budget as a proportion of GDP would continue in the coming years.
This was perhaps the most obvious error in S&P's decision to upgrade Israel's credit rating, but it was not the only one, and not the worst. They did not of course err in their analysis of the data. Where they went wrong was in their gauging of the political winds and of the vectors currently dictating the government's fiscal policy.
The S&P analysts underestimated the government's lack of will to halt the growth in expenditure for the benefit of pressure groups, such as the demand for nearly NIS 8 billion presented by the police, prison service and Israel Security Agency and Mossad pensioners. The S&P analysts failed to give sufficient weight to Netanyahu and Minister of Finance Moshe Kahlon's determined opposition to boost state revenues by the straightforward means of raising taxes or abolishing tax benefits.
The fourth, and perhaps most serious, mistake was exposed by the Bank of Israel this week: four ways in which the government of Israel massages its accounts contrary to accepted accounting practice, through the Ministry of Finance Budgets Division, and inspired by the Greek government before the collapse there. On one of the four, for example, the Bank of Israel writes: "The sale of state lands is presented as revenue, instead of as the realization of an asset as was done until a few years ago and as is normal under the accepted accounting standard. Since the sums involved reach several billion shekels annually, and this activity is expanding, the practice is liable to have a material impact on the presentation of fiscal spending and of the deficit."
S&P's fifth mistake was the rating upgrade itself, which gives a stamp of approval and backing to the evil wind blowing in government corridors: continue raising expenditure, continue not dealing with tax exemptions, don't expand sources of revenue, and continue to deceive us and yourselves with creative accounting exercises.
Published by Globes [online], Israel business news - www.globes-online.com - on August 23, 2018
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