When Israel vastly ramped up defense spending in the 1970s to address security risks exposed in the 1973 Yom Kippur War, the economic side effects were devastating. Economists are now worried about a repeat.
The
ongoing war in Gaza is the most expensive in the country’s history:
The central bank has estimated the total cost of the conflict will run to 250
billion shekels or US$67.4 billion through 2025.
Defense spending before the war was at an all-time low of
4.5% of GDP. It’s set to double this year to 9%, according to Manuel
Trajtenberg, a professor emeritus in the economics department of Tel Aviv
University.
“The decisive test will be the government’s ability to lower
the defense-spending-to-GDP ratio back to reasonable levels within several
years,” he says. “Otherwise, we may slide back into another lost decade.”
Working in Israel’s favor is that its starting point was
strong. Over the past 15 years, the nation’s per-capita GDP has risen above
that of Britain, France and Japan.
But costs are apparent. When Hamas attacked and
some 300,000 reservists rushed into uniform, Israel’s powerhouse tech
industry suddenly found itself short of labor, while businesses in and around
the Tel Aviv area lost some of their best customers.
With Prime Minister Benjamin Netanyahu having
committed billions of shekels for spending demanded by his ultra-Orthodox coalition
partners, many economists worry of a “spiral of collapse” — where
Israel’s better-educated, high-earning citizens choose to emigrate rather
than shoulder the fiscal burden of supporting large Orthodox families.
Scores of economists conveyed that message recently to
the government, in a letter calling for an end to public support for
schools that don’t train students for the modern labor market and requiring
ultra-Orthodox to be drafted.
Israel already underinvests in areas such as education
and health compared with developed economies. If policymakers look to free up
funds for military upgrades by paring back those priorities, along with
transportation and welfare, it’s the economy that may pay the price.
