Occupied JerusalemThe joint announcement by Israeli Finance Minister Bezalel Smotrich and Defense Minister Yoav Gallant to launch the “reserve recruitment” program carried with it disagreements within the government regarding the sources of funding for this program within the 2024 budget.
The financing program for the reserves is allocated to pay compensation, provide donations, aid, and financial cover for reserve soldiers, their families, and companies affected by the war on the Gaza Strip.
The announcement of the program comes as the Israeli army continues to demobilize more reserve forces, in order to return them to the labor market and jumpstart the economy, which was damaged by the war as a result of the absence of approximately 350,000 who were called up for reserve service for more than two and a half months.
It is evident from the program allocated to pay compensation to the reserve forces at a total cost of 9 billion shekels ($2.5 billion), that there is no consensus regarding the source of funding for the program that is supposed to be approved within the budget law for the year 2024.
According to the program, which the Israeli government will discuss in its weekly session next Sunday, compensation amounting to 30,000 shekels ($8,333) will be paid to a reservist soldier in exchange for service during the war period, while reservist soldiers who own companies and commercial interests will be compensated, according to the general standards that were determined. In exchange for compensation for losses to commercial interests and companies in the country.
Discussions and modifications
In the absence of clear sources of funding for the reserve compensation program and affected companies, the pace of disagreements is escalating within Benjamin Netanyahu’s government, regarding transferring the budgets of the government coalition agreements to cover part of the expenses of the war on Gaza.
During the discussions about the amendments required for the 2024 budget, the professional staff in the Ministry of Finance proposed closing 10 unnecessary ministerial offices, but without any of the listed ministers speaking up, while Smotrich expressed his opposition to the proposal.
In addition, the opposition bloc renewed the demand to transfer the budgets of the government coalition agreements included in the 2024 budget, to cover war expenses, including the establishment of a special fund at a cost of 10 billion shekels ($2.75 billion) to compensate the reserve forces, which was proposed by opposition leader Yair Lapid.
In light of the war on Gaza, the economic crisis, and the stagnation in the labor market, the 37th government of Israel, consisting of 31 ministries, faces many internal challenges, whether social, political, or economic. The coalition government consists of 6 parties: Likud, “Torah Judaism,” and “Shas.” “,” “Religious Zionism,” “Jewish Greatness,” and “Noam.”
Disagreements and chaos
Shoki Sadeh, an investigative journalist at the Shoki website, believes that the discussions regarding a budget for the year 2024 will show the depth of the differences in Israel regarding everything related to approving the budget, as well as allocating more budgets to cover war expenses or increasing the budgets allocated to the Ministry of Defense as well as the reserve compensation program.
Sadeh explained that without canceling unnecessary government offices and ministries “which did not perform any function during the war,” the budget deficit will worsen even if the budget framework is expanded to reach 600 billion shekels ($165 billion), saying that “this imposes a heavy price on society.” and the Israeli economy.
He pointed out that “the existence of unnecessary ministries only in order to maintain the government coalition reflects the administrative chaos that accompanied the government during the war, by seizing the public’s financial resources and allocating them to groups and sectors participating in governance, through trivial policies, divorced from national interests.”
In the revised budget for 2023, which was approved by the Knesset, the cost of non-essential ministerial offices amounted to no less than 1.35 billion shekels ($375 million), and for the 2024 budget, which has not yet been approved, Sadeh expects the budget for non-essential offices to increase.
After the publication of the Bank of Israel’s decision to reduce interest rates, and against the backdrop of Governor Amir Yaron’s criticism of the government regarding its budget policies in light of the war and the steps that have not yet been taken to reduce the deficit, Smotrich rejected Yaron’s recommendations that call for abolishing unnecessary ministerial offices and raising taxes, according to what the newspaper reported. Yedioth Ahronoth.
The newspaper quoted Smotrich as saying, “The source of funding and payment of compensation for the reserve forces will be from the budget allocated to the Ministry of Defense and will be at the expense of purchasing ammunition and equipment.” However, Netanyahu stated that the Ministry of Defense will receive an additional budget worth 20 billion shekels ($5.5 billion), indicating that This increase does not include the “reserve recruitment” program.
Stick and carrot
Yedioth Ahronoth newspaper’s economic affairs correspondent, Gad Lior, believes that the Governor of the Bank of Israel, with his decision to reduce the tax in these circumstances, resorted to adopting “carrots and sticks” with the government, but he says: “Maybe Netanyahu and Smotrich will not understand the hint this time as well about the economic policies that must be adopted under the circumstances.” War and the need to make adjustments to the budget.”
He considered that the government, in order to maintain the coalition, was behaving irresponsibly, and could be described as “childish behavior” of the ministers.
According to Lior, the Netanyahu government is acting as if the matter does not concern it, and has no intention of making adjustments to the budget or affecting the coalition budgets, which will push towards a huge budget deficit and pose a threat to the stability of Israel’s economy.
Salaries and compensation
When you look at the economic models that explain the damage of war, Shlomo Teitelbaum, an economic analyst at Calculist newspaper, says, “It is clear that one of the main sources of the decline in economic activity is the widespread mobilization of the reserves. Paying salaries and compensation to reservists is a relatively small cost, but the price “The expensive price is due to the fact that these reserves are not working.”
According to Ministry of Finance data, 140,000 workers were absent from the economy last November due to military service, noting that recruiting 100,000 reserve soldiers costs about 100 million shekels ($28 million) per day, in addition to the indirect cost of production. The missing amount amounts to another 100 million shekels per day.
It is clear to everyone even at this moment – the analyst adds – that “in the midst of the fighting, there are many soldiers who could be returned to the labor market, and to this day there are a very large number of reservists at headquarters and in many other places, and if they are not demobilized, “We will pay a heavy price that will drain the economy.”