The Nagel Commission on Security and Force Building Budget Evaluation, chaired by Professor Jacob Nagel (reserve general and former head of the National Security Council), has published its final recommendations, which include a NIS 133 billion addition to the defense budget over the course of the year. next decade. The increase allocated for rearmament and routine security is less than the minimum requested by the security establishment, and also less than previous estimates of the committee’s recommendations, which amounted to about 200 billion shekels.
Although the committee was authorized to do so, it decided to refrain from recommending tax increases to finance the additional costs, and relied mainly on Israel’s GDP growth to provide a budget source.
The defense budget for 2025 will be NIS 123 billion, compared to NIS 117 billion in the budget proposal currently presented to the Knesset. An additional NIS 9 billion will be given to rearmament, of which NIS 3 billion will come from the already approved increased defense budget, and the rest from the Finance Ministry budget.
Nagel said in a press conference about the publication of the committee’s report: “The numbers requested by the defense establishment were two numbers higher than the minimum that we set, but we determined the supplement in a way calculated so as not to cause economic damage.”
Transfer of responsibility
The committee recommends an annual increase of NIS 15 billion to the defense budget from 2026 to 2030. From 2031 onwards, the annual supplement will be gradually reduced to NIS 13 billion in 2031, and NIS 12 billion from 2032 to 2034.
Nagel said that the only part of the committee’s mandate that he did not like was the part related to recommending budget sources to finance additional funds for the IDF, a point that Finance Minister Bezalel Smotrich insisted on. The committee has already transferred responsibility for this to the Ministry of Finance, and recommended not to increase taxes beyond the tax increases already in the state budget for 2025. “In 2025, the supplements could be financed from existing reserves in the budget, assuming there is no large-scale war,” Nagel said. “. He said that in the coming years, financing will come from expected economic growth according to Bank of Israel forecasts, with an average of NIS 10 billion from other sources besides taxes.
He added, “The committee recommends that the government at the same time approve the required sources, partly from the set of potential sources presented by the Ministry of Finance to the committee, and partly from other sources, as much as possible without imposing additional taxes.” Beyond those set for 2025,” the committee’s report contains 110 publicly available pages and another 20 confidential pages.
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“The committee chose not to prioritize or change the recommendations of the Ministry of Finance, mainly because of its limited capabilities, and out of its awareness that the Ministry of Finance and the Bank of Israel look at the economic picture as a whole and the current situation.” The ability to implement every suggestion.”
The committee presents a series of recommendations to strengthen the professional army and the reserve, the most important of which is raising the salaries of workers in the professional army to match the civilian labor market. “Wages for those serving in the professional military must be attractive and fair compared to other sectors,” in order to attract a high-quality workforce, the report states. The report recommends creating an additional 250 jobs in the Ministry of Defense, with a focus on rehabilitation departments and bereaved families. It also recommends abolishing the link between other security agencies such as the police and the army.
Over the decade, the defense budget is expected to stabilize at a rate of about NIS 96 billion annually. This compares to just over 60 billion shekels in the year before the current war. The base budget, which includes security projects, will range between NIS 64 billion and NIS 69.5 billion, with NIS 10 billion added annually to build the force between 2025 and 2027, gradually decreasing to NIS 7.4 billion in 2031.
A special annex is allocated to the Department of Rehabilitation and Families, which will gradually grow from 3 billion shekels in 2025 to 8.1 billion shekels in 2033.
Conflict that will harm the economy
While the Committee refrains from delving into the issue of Haredi recruitment and equal burden-sharing, it expresses a general position on this issue. The report stated, “The committee believes that equal compulsory service for all citizens is a formative principle in Israeli society, a principle that simultaneously achieves security, social, and civil goals, especially when the State of Israel faces continuing security threats.” He recommends introducing the required change gradually, “according to the IDF’s recruiting capacity and needs,” but avoids setting timelines or numerical targets, or even mentioning the word “haredi” explicitly. The avoidance of any in-depth discussion of the issue, despite its significant consequences for the defense budget, reflects its political sensitivity.
Nagel said: “The developments related to Iran, which led to the downgrading of our credit rating, do not, in our opinion, reflect the real economic situation.” The committee believes that the end of the war and reducing the number of mobilized reserves will help reduce risks and recovery, but warns that a direct conflict with Iran would harm the economy.
The committee decides that a discussion should be held between the Ministry of Defense and the Ministry of Finance in January of each year to establish a “commitment allowance” framework that will allow the defense establishment flexibility in managing the future budget. “This will enable them to start things at the expense of future things, which will enable them to utilize the entire budget,” Nagel explained.
According to estimates by the Finance Ministry’s chief economist, Shmuel Abramson, the result of the planned additional defense spending is a cost of about NIS 8,000 per year to the average family for every NIS 20 billion given to the IDF. The Ministry of Finance recommended three main sources of funding: strengthening the fight against the shadow economy; Eliminate tax exemptions; High tax rates.
Are there any winners?
In the end, who wins in the battle of hundreds of billions of shekels between the Ministry of Finance and the security establishment? Nagel said the supplements to the defense establishment were less than the minimum requested by the military, but the Treasury Department was not happy with the end result. Its officials believe that the recommendations are billions of shekels higher annually than the need on the ground. Indeed, Finance Ministry sources say that the recommendations will not be accepted in the end due to the size of the supplements.
The Ministry of Finance also expressed disappointment that the committee did not focus sufficiently on efficiency measures in the defense budget, and refrained from providing significant funding sources. The Finance Ministry’s position was that there was scope to add NIS 10 billion annually to strengthen the armed forces beyond the amounts agreed upon with the IDF during the war. On the other hand, the security establishment put forward demands that peaked at an additional NIS 220 billion over four years, nearly doubling the defense budget compared to its pre-war size.
Published by Globes, Israel Business News – en.globes.co.il – on January 7, 2025.
© Copyright Globes Publisher Itonut (1983) Ltd., 2025.
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