Israel's Deficit Target Likely to Be Met Despite Defense Spending Increases
Dr. Lior David-Pur, Deputy Accountant General for Macroeconomics and State Budget at Israel's Ministry of Finance, stated that the country is likely to meet its deficit target of 4.9% for the year, even with potential increases in defense spending. He noted that positive surprises in tax revenues have helped stabilize the deficit at just over 3% in recent months, though the final figures are typically higher in the last quarter.
David-Pur addressed the ongoing government discussions about potentially exceeding the state budget to allocate tens of billions of shekels for defense needs, including a NIS 400 billion plan for military procurement over several years. He acknowledged the necessity of defense spending, especially during wartime, but emphasized that "there are no free lunches, nor are there free wars." He also pointed out inefficiencies in how some defense funds are managed, suggesting a need for greater efficiency and a reform in the oversight of military procurement budgets.
A reform is underway to better track defense spending by translating multi-year commitments into cash flow, aiming to prevent budget overruns and allow for better planning. David-Pur explained that this is crucial because the state budget is based on cash expenditure, while the Ministry of Defense operates with long-term contracts. He also commented on the debt-to-GDP ratio, which stood at 67.9% before October 7th and rose during the pandemic. He believes that while a NIS 400 billion defense buildup would likely increase this ratio, it might be necessary and requires corresponding budget adjustments, potentially through tax increases or spending cuts.
David-Pur also touched upon issues with budget transfers within the government, referencing a recent State Comptroller report that criticized the timing and manner of these transfers. He highlighted the challenges faced by treasury accountants who act as "gatekeepers" when faced with conflicting legal obligations, such as salary payments and contractual commitments, especially when budget changes occur late in the year. He stressed the need for improved cooperation between government ministries, the Budget Division, and the Knesset to streamline budget approvals and avoid such conflicts.
