Where did the IDF’s money disappear to, anyway?

Where did the IDF’s money disappear to, anyway?

How the IDF got into this financial mess, canceling training and warning of delays to key missile defense projects – and why it happens year after year

Haviv Rettig Gur is The Times of Israel's senior analyst.

Illustrative photo of IDF troops simulating fighting. (photo credit: Edi Israel/Flash90)
Illustrative photo of IDF troops simulating fighting. (photo credit: Edi Israel/Flash90)

Since the beginning of this month, the army’s training flights have been grounded and training for reserve brigades has been canceled. Defense Minister Moshe Ya’alon has warned in recent weeks that the deployment of parts of Israel’s missile defense shield, a key strategic asset in any future war with Iran, will be delayed. Having run out of funds halfway through its fiscal year, one of the most sophisticated and powerful militaries in the world is now frozen in place as it begs and haggles its way between Knesset committees and government ministries seeking another billion or so taxpayer shekels to keep the lights on.

Every year, the Israel Defense Forces comes to the Knesset begging for cash, warning of dire shortages in training and materiel, and briefing lawmakers on the ever-gathering storms on our borders that threaten the existence of the fragile Jewish state.

The theatrics of these budget battles, conducted with almost clockwork regularity for decades (last June, for example, saw the same arguments and the same canceled training), have led many pundits, lawmakers and citizens to mock the military’s wolf-crying and begin to question its ability to balance its books.

But these budget battles have consequences that are far worse than the erosion of the public’s trust in the military’s fiscal responsibility. The constant, unplanned changes in the budget — typically, the military complains of a shortfall, cites a shekel figure, and receives exactly half that figure when the prime minister inevitably intervenes and splits the difference — makes it almost impossible to conduct long-term planning for the IDF’s order of battle.

The IDF is supposed to operate according to a “Tarash,” a military-style acronym for tochnit rav-shnatit, or “multi-year plan.” But the defense establishment hasn’t even bothered to write such a plan since at least 2011 when the last Tarash was tossed out after the government sliced into the defense budget (among other budgets) to fund heightened social spending in the wake of that summer’s social protests.

This shift to social issues – including, for example, the expensive decision to lower the starting age of free mandatory schooling from five years to three – has left the Defense Ministry about NIS 7 billion poorer ($2 billion) in 2014 than it should be according to the 2008 recommendations of the Brodet Committee on the defense budget, the government’s last major external effort to assess the defense establishment’s budgetary needs.

Meanwhile, while the army’s budgets are squeezed by changing priorities, its financial needs are only growing.

MK Ze'ev Elkin (photo credit: AP/Dan Balilty)
MK Ze’ev Elkin (photo credit: AP/Dan Balilty)

“There’s a built-in tension,” explains MK Ze’ev Elkin (Likud), chairman of the Knesset Foreign Affairs and Defense Committee, the main civilian body overseeing the defense establishment.

“We’re a country where the security threats change but don’t disappear. At the same time, armies all over the world are growing smarter, more technological, and more expensive. The growing threats and smarter armies increase the costs of defense,” he says, adding: “We’re also one of the fastest growing Western countries in population, if not the fastest. The national budget is largely spent on defense, education, infrastructure and health-welfare – and every part is growing simultaneously.”

In a country run by elected politicians, priorities change. And the lack of long-term planning means the army is constantly playing catch-up to secure the budgets it needs to operate.

Having their cake

But the government’s shifting priorities are not the biggest drain on the IDF’s budget. The Defense Ministry still finishes most fiscal years with a larger budget than the previous year. The single largest expense that eats away at the IDF’s budget is the growing cost of manpower expenditures, primarily pensions, which will cost some NIS 7 billion in 2014, a result of the military’s long-time insistence on retaining its own pension system as part of the Defense Ministry’s budget.

The IDF’s annual budget is, roughly, NIS 27 billion ($7.8 billion), while the Defense Ministry’s (including the IDF) comes to some NIS 55 billion ($16 billion, though both figures can rise and fall by billions over the course of a year). Or, put another way, the IDF’s budget is less than half of the cost of the Defense Ministry as a whole.

The pension costs, funded by the Defense Ministry but not through the IDF budget, make up a significant chunk of the gap between those two numbers. And while incoming officers are now paying into employer-matched pension funds separate from the defense budget, it will be many years before the last of the officers whose pensions are funded through the defense budget finally retire.

The pressure is acute. The majority of non-army Defense Ministry spending is “rigid,” a Treasury term for funds that cannot be cut, such as pensions and contractual commitments. As lifespans lengthen and the pension rolls grow – while the Defense Ministry’s budget continues to be allocated each year as a pre-planned block of money, just like every other ministry’s – the result is an unrelenting pressure on the Defense Ministry’s most flexible budget: military operations.

“The defense budget needs a structural change, which in my view won’t come from external committees, but from the defense and finance ministries sitting down together,” according to MK Ofer Shelah (Yesh Atid), a member of the Knesset Foreign Affairs and Defense Committee and its Joint Committee on the Defense Budget.

MK Ofer Shelah of Yesh Atid (photo credit: Flash90)
MK Ofer Shelah of Yesh Atid (photo credit: Flash90)

Shelah is also a close adviser to his party leader, Finance Minister Yair Lapid, and is considered a key figure in resolving the current standoff.

The two ministries must “establish a team that will sit down and solve the structural problems in the defense budget,” Shelah told The Times of Israel. “The team, whose members will [have the power to] sign the checks, will need to bring the overall defense budget closer to the IDF’s budget, create more correlation between the two” — i.e., shrink the non-army part of the Defense Ministry’s budget, the part dealing with personnel.

MK Yariv Levin (Likud), who chairs the Joint Committee, agrees. “In the end, the government has to resolve the immediate funding crisis, and it has to create long-term plans. That’s how it works: the government writes the budget and we approve it. Our job is to hold up a mirror to let them see the urgency of this.”

But if the government fails to find a resolution to the budget crisis, Levin promises, the Knesset will take a far more activist stance.

The IDF is correct that its budget is in bad shape, and Chief of Staff Lt. Gen. Benny Gantz is not lying when he claims that the army is desperately short of cash, despite multiple budget increases in recent years. The Defense Ministry may be getting an ever larger amount of taxpayer shekels, but the army’s available budget depends on whether those increases are greater or smaller than the growth in pension and other rigid expenses.

The missing war

The training stoppages are serious. An air force that does not fly for a few weeks is severely handicapped if it is suddenly called upon to fight.

Yet the emptying of the training budget was not accidental. The IDF intentionally spent its entire 2014 training budget between January and May. The reason: the army’s best intelligence assessments expected a war this summer.

It may have been the weakening of Hamas in Gaza, instability in Egypt, spillover from Syria, an escalating tit-for-tat with Hezbollah on the Golan border, or a broader Iranian push in the region. Whatever led to the army’s assessment — unlike the fact of the heightened spending, the assessment itself is not public — the effect was a dramatic ramp-up of the training regimen of the IDF’s combat divisions in an effort to ensure that they were in top readiness for the coming conflict.

It is only June; the IDF’s assessment may yet prove prescient and its overspending completely justified. Yet whether the IDF’s assessments prove accurate or not — the enemy, of course, always has a say in such things — one can, perhaps, question a budget process that enables such profligate spending without first ascertaining whether the Knesset and government will approve additional funds. It is that bureaucratic disconnect, not the fact of the IDF’s preparations, that is worrying.

An Israeli army tank is seen stationed near the village of Majdal Shams, on March 19, 2014, in the Golan Heights. (photo credit: AFP/Jalaa Marey)
An Israeli army tank is seen stationed near the village of Majdal Shams, on March 19, 2014, in the Golan Heights. (photo credit: AFP/Jalaa Marey)

“The IDF took an intolerable risk when it carried out all the year’s training at the beginning [of the year],” argues Elkin.

“We need between one and 1.5 billion shekels [of additional funding] to keep the IDF at minimal readiness till the end of the year. Every day that this issue is delayed makes that more expensive. So we’re doing everything we can in the committee to solve this within the next week or two. It’s scandalous that this crisis has gotten this far.”

Shelah, Levin and Elkin share a sense that the IDF is both the perpetrator and the victim of the budget crisis, and that the solution lies with the creation of a systematic planning process that will take the military’s unique needs – unexpected spikes in spending due to actual or expected conflict, higher pension needs due to its special manpower requirements, etc. – into account.

The IDF wants to have its cake and eat it too. It wants control over pension funding while demanding unplanned budget increases to compensate for the growth in those costs. The army is also poorly served by a government that has not instituted a flexible yet plan-able budgeting system for such a vast but indispensible national institution.

One hopes that as a result of the army’s permanent state of financial uncertainty, and the resulting decline in combat readiness that is now being forced on Israel’s fighting divisions, it is becoming increasingly evident to the military’s top brass and their civilian overseers in the Knesset that it may be time to resolve this structural problem once and for all.

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