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Thursday, June 14, 2007

Israel's Defense Budget - a futile analysis

This little discussion of the Israeli defense budget by one of Israel's top security experts is revealing and scary. Giora Eiland reduces the entire problem to one of budget allocation, adminstration and bureaucracy, and apparently that is how it is handled by the government. We have a government of book keepers and bean counters, who do not consider larger issues.
The questions that are raised for example, such as why Israel might need a budget that is larger than the combined defense budgets of its neighbors are not answered, and instead a panacea is offered: multi-year defence planning. The "advantage" of this panacea is supposedly:
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.
If "defense requirements change all the time" then it would seem that we cannot make a firm multi-year budget, that will include for example
Qty Item                                                Cost       Year 
1     War, 6 Day,                                  $400 M       1967
1     War, Yom Kippur                         $1 Billion    1973
1     War, Lebanon, 2nd                      $2 Billion    2006
1     War, Syria                                     $5 Billion    2007
1     War, Iran, Nuclear                      $100 billion* 2010
* Burial costs to be defrayed by ministry of religion, not included.
The remark by Eiland, "there are tasks that required significant resources in the past (e.g., the Golan Heights front) and require less today" is frightning. It means that Eiland, and probably others, are not taking the probability of war with Syria seriously at all. This year's budget and this year's planning do not envision any problem with Syria.
Military procurement is always wasteful, and there are always schemes to reduce the waste, of uncertain value. Israel will not be saved by a better bean counting scheme alone. The Lebanon War indicated clear problems in Israeli military procurement and budget practices. These problems were not limited to inadequate training of reserves as Eiland asserts. Because of budget cuts, Israel did not try to develop a missile defense and stopped procurement of Merkava Mark IV tanks. The former left us defenseless against Hezbollah rockets. The latter meant that vulnerable Mark III tanks were deployed and blown up by Hezbollah. The disconnect between reality and analysis is remarkable.
In addressing the relative size of Israeli and "neighboring country" defense budgets, the following must be kept in mind:
1- Israel, unlike Iran or Syria, has to be absolutely certain of being able to prevent a signficant initial enemy incursion. If Israeli troops penetrate 50 or 80 miles or so into Syria, it might be unpleasant for Mr. Assad, and a Security Council meeting will be called to condemn Israel. But if Syrian troops reach Haifa, Israel may be finished, and no Security Council meeting will help us.
2- Israeli soldiers and officers get paid more than those of neighboring countries. What counts on the battlefield is how many soldiers there are, not how much salary they draw in total.
3- The cost of administering the West Bank and dealing with Gaza must be subtracted from the defense budget, because it is not related to defense against foreign threats and doesn't materially contribute to it. Defending settlers in Izhar isn't going to stop Syrian tanks in the Golan, but it costs money.
4. In 2005, the defense budget of Iran was estimated at $6.3 billion or about NIS 26 billion.  Egypt and Syria are known to spend about $5 billion annually on defense, and these are old figures and underestimates. The total, $11 billion, is far larger than the Israeli defense budget, though their manpower costs are much lower.  Therefore, the notion that Israel outspends all of its neighbors on defense is rubbish.
5. The notion of "across the board cuts" with defense getting the same priority as Yeshiva students and subsidies for settlements, is dangerous and poor thinking. The "low priority" defense expenditures that are always eliminated are things like shelters for northern towns, reserve training etc. If there is no Israel, there will be no Yeshiva students or settlers anyhow.
Ami Isseroff
INSS Briefing:
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 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.
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 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 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.
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 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.

Copyright - Original materials copyright (c) by the authors. Originally posted at Please do link to these articles, quote from them and forward them by email to friends with this notice. Other uses require written permission of the author.


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