No.

6 June 14, 2007

Israel's Defense Budget

Giora Eiland

The size and composition of Israel's defense budget provide a regular subject for public
debate. The debate revives very year in the fall, when the time approaches to decide on
the defense budget, and perforce includes the question of prioritizing among various
defense and social welfare needs (or as Shaul Mofaz was wont to say, between “life and
the quality of life”).
This year, in the aftermath of the Second Lebanon War, a new dimension has been
added to the debate: were the IDF’s inadequacies in the war due in part to an insufficient
defense budget (no funds for reserves training), or to an incorrect distribution of the
budget (a great deal was allocated to the air force and less to the army). Alternatively,
perhaps there is no correlation between the war and its results and the defense budget.
This paper aims to examine whether the issue is actually “the correct size” of the
defense budget, or whether the main issue is the absence of an ordered process to create
“the correct budget.”

The Current Process of Defense Budget Approval

The defense budget in Israel is a product of “a clash of giants” – the Ministry of Finance
and the Ministry of Defense. It is approved as part of a regular procedure that recurs
annually. Approval of the 2003 budget, which was negotiated in the fall of 2002, is
emblematic of the process. There were four stages involved:
On one Thursday evening, three days before the government discussion about the
national budget, Prime Minister Sharon held a preparatory discussion with officials of the

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Ministry of Finance and the Defense Ministry. IDF officers were the first to present their
case. They presented “the essential defense needs,” whose price tag was NIS 39 billion.
They cautioned that “every shekel below this price will lead to an unacceptable security
risk.” Ministry of Finance officials then made their presentation. They analyzed all the
macroeconomic parameters and said: “The defense budget will be NIS 30.6 billion, and
every shekel added to the defense budget will puncture the economic program.” The
discrepancy between the ministries' positions was NIS 8.4 billion. There was no
possibility of bridging the gap at the discussion so the prime minister directed the director
general of the prime minister’s office to meet with the two sides to put together a
compromise proposal.
The director general of the prime minister’s office called an urgent meeting for
the next day (Friday). The compromise proposal was put together, whereby the defense
budget would be NIS 32.6 billion, NIS 2 billion more than the Finance Ministry
requested and NIS 6.4 billion less than the Ministry of Defense wanted. The proposal was
submitted to the government meeting on Sunday, where it was approved over the
protestations of the other ministers, who were suddenly informed that they had to weather
a NIS 2 billion cut. The important part of the meeting was the comment by the chief of
staff, who said that while it was the government’s authority to decide on the defense
budget, he requested the opportunity to demonstrate to the prime minister the security
ramifications of the (“irresponsible”) budget. Naturally, the prime minister agreed.
Two months later there was a meeting between top IDF officers and the prime
minister. One after another, the generals presented the damage that the IDF's capabilities
would suffer. The prime minister, who began to waver, convened a meeting of the
government two weeks later to approve an additional NIS 4 billion to the defense budget.
This chain of events reveals six problems, four connected to the process and two
to the outcome. The problems with the process are:
a. There is no staff work by the government. There is no professional process that
“connects” cost to effectiveness, or the budget to the quality of the defense solution.
b. There is no discussion of specifics by the government. The ministers have no idea
about the risks involved in a particular budget versus the smaller risks of a larger
budget.

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c. The final decision is made months past the time when it should have been made.
Consequently, the other government ministries undergo an across-the-board cut after
having finished planning the work year and finalizing their budgets.
d. Every year, an enormous amount of energy is expended on the same process that in the
end leads to a result that could have been predicted from the outset. This creates
uncertainty about the size of the defense budget, which prevents optimum multi-year
planning.
In terms of the outcome, the cost is twofold:
a. There are specific expenses that the Ministry of Defense considers justifiable, but one
can assume that they would not be approved by the government if the ministers knew
enough to vote on them. An opportunity for genuine control of the particulars of the
Ministry of Defense budget is missed.
b. The ministers, including the prime minister, are not familiar with the IDF’s
capabilities. They do not have anyone who is not an interested party who can explain
to them the significances of various budget levels, or what the alternatives are within
the framework of a given budget. In other words, there is no real government control
of the “defense output” produced or that would be produced by different budget
levels.

2004: A Proposal for Change

In the course of 2004 a committee made up of David Ivri, Yossi Kuchik, Yaakov Sheinin,
and the author of this essay prepared a proposal on the defense budget that was presented
to the government in August 2004. The proposal comprised four elements, three general
and one specific:
a. A recommendation that the defense budget be a multi-year budget with changes made
to its framework only in extraordinary situations and if initiated by the prime minister.
The same recommendation appeared in the Meridor committee report in 2006.
b. It was recommended that the multi-year budget comprise fixed annual sums (in real
terms). Since the GNP increases by 3-5 percent each year, the defense budget’s share
of the national product will (gradually) decrease. The state budget also increases

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 every year, and thus, the share of the defense budget in the general budget will also
decrease annually.
c. The staff entity of the government (the National Security Council) will prepare a
graph displaying the connection between the level of the defense budget and the level
of defense. The government will be able to hold an informed discussion on a selected
budget area in the graph. For example, the government can ask how much would be
saved from the defense budget if Israel decided to waive the capability for a direct
military operation against Iran, or if the government agreed to take a risk and decided
that in the coming "x" number of years Egypt will not be involved in a war against
Israel. Each of these two examples represents a possible saving of billions of shekels.
The “right budget” is the budget that reflects the acceptable degree of risk and the
alternative price (i.e., which “civilian” objectives would we have to forego to allow a
solution to these threats.)
d. The concrete component was a recommendation on the size of the defense budget. A
graph was prepared based on the above recommended elements, the significances of
each point were presented, and the recommendation was to set a budget of NIS 35
billion (excluding the dollar aid budget).
The government discussed the committee’s recommendations and did not approve
or reject them. The matter fizzled out. The actual defense budget was approximately NIS
34 billion each year. The damage to the state of preparedness (training and stock levels)
increased. In April 2006 the defense budget was cut suddenly by a further NIS 0.5 billion.
In July 2006 the government decided to go to war, without checking or knowing the
IDF’s state of readiness.

The Size and Composition of the Defense Budget

Although this article addresses the deficiencies in the process of determining the defense
budget and not the sum that should be allocated to defense, two aspects that impact on the
size of the budget should also be noted:
a. Every year, prior to the budget discussions, there are calls for a deep cut in defense
spending. The sums mentioned start from NIS 4 billion. The rationale used includes a
comparison between Israel’s defense budget and its potential enemies’ defense

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 budgets. One of the arguments claims that Israel’s budget is larger than the combined
budgets of Syria, Jordan, and Egypt and thus can be cut. This argument ignores a
number of key factors. One is the nature of most military confrontations in the 21st
century – clashes between state armies and terror and guerilla organizations. An
outlay of $100 is required in order to “produce” a suicide bomber, but $1 million is
needed to prevent the attack. How does the comparison between the budget of Hamas
or Hizbollah and the IDF budget contribute here?
b. In November 2006 the prime minister held an urgent discussion about a solution to
the increasing threat of incursions by terrorists (and criminals) into Israel through the
Egyptian border. The IDF presented a plan, including procurement of numerous types
of equipment. The cost of the plan requested by the army as an addition to its budget,
due to “the new task,” was about $1 billion. The prime minister quite rightly rejected
the request. The more general and more important conclusion to be drawn from this
incident is – defense requirements change all the time. There are tasks that required
significant resources in the past (e.g., the Golan Heights front) and require less today,
and there are tasks that require greater investment. By the same token, the relative
need to provide a solution for new types of threats at the expense of old ones is also
changing. If the defense budget is administered on a multi-year basis funds would be
able to be transferred between areas within the budget framework. Just as it is not
right to make deep cuts because “the wars have ended,” the budget should not be
increased every time “a new need” emerges.

Conclusion
Prime Minister Olmert established a committee headed by David Brodet to examine the
defense budget in the wake of the Lebanon War and it recently submitted its findings. It
seems that the committee reached conclusions similar to those of this article, at least with
respect to the need for a multi-year budget. However, the need to provide the government
ministers a means of connecting a budget (input) and defense (output) that would act as
the basis of any discussion on the matter is no less important.
In addition to the above recommendations regarding handling of the defense
budget on a government level, steps to increase efficiency in the process of formulating

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the budget and its implementation within the defense system should also be examined.
Not everything that appears axiomatic to the Ministry of Defense or the IDF is also right
in terms of a “civilian” approach that has no prior commitment to existing practices. For
example, there is a principle in the defense bureaucracy according to which “officers do
not deal with money.” According to this principle, after the professionals in the IDF
decide what equipment they want, the requisition is transferred to the Ministry of Defense
whose personnel are the only ones authorized to issue a tender and administer the
requisition process. The duplication of systems costs millions of shekels.
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