If you could start a country from scratch, in a somewhat hostile region, how would you structure its budget to attract the most people? Also, what would you name it? I would go with Not Sudan.
Recently, Moody’s, one of the foremost credit rating agencies in the world, affirmed Israel’s status as a stable and successful country. They clearly have never tried to send a package through the mail to the country. The report complimented Israel’s economic and institutional strength and the government’s fiscal policies. However, the agency also mentioned that Israel’s high defense expenditures keeps it from receiving the highest rating.
Defense spending is a sensitive issue. Some would argue that the main function of a state is to provide for physical security. Furthermore, if a country must go to war, its economy can be severely affected. Operation Protective Edge led to the government cutting the budget by 2% or around $2.52 billion dollars. The war cost Israel about .5% of GDP growth. The costs stem from munitions, calling up reserves, infrastructure destruction and reduced tourism amongst other things. So it may pay off to overspend on defense to prevent war than to actually engage in war. It’s the insurance policy that no one wants to buy.
On the other hand, the costs that stem from defense spending are exorbitant. Israel’s military budget as percentage of GDP is second in the world (to Saudi Arabia). Expenditures on the military make up a large chunk of the Israeli tax burden. For instance, Israel recently purchased a fleet of F-35 fighter jets with each plane costing around $200 million dollars and the whole deal costing somewhere around 15 billion dollars. The education budget in 2015 was 12.1 billion dollars and teachers make about 32,000 dollars a year. Military pensions in particular cost the government huge amounts of money (Haaretz is a particular fan of this fact).
So how can we judge what is necessary and what could be spent elsewhere? Due to the nature of intelligence, the public will never have access to information that will allow us to assess if a conflict is immanent or how many of different types of weapons are needed. However, certain criteria can be used to examine defense spending. The first is to check the amount of “dead money” that is in the defense budget. For instance, how much is going to pensions for retired officers? Some of it is justified, some is excessive. Another criteria we can use is to look at how the government is spending its money. Different periods and threats require different weapons. For instance, tanks are being deemphasized in war while cyber capabilities are becoming more important.
One more thing to consider. Peace can be a fantastic money saver. One of the greatest contributions to the Israeli economy was peace with Egypt. Defense expenditure as a percentage of GDP went from over 25% from 1973-1977 to 20% from ’78-’84 to 15% from ’85-’89 to 10% from ’90-’96 and hovering around 5% since then.