Macro Chief at Treasury: Israel Can Meet Deficit Target Despite Defense Costs
Deputy Accountant General Dr. Lior David-Por discusses Israel's state budget, deficit targets, and upcoming military procurement reforms in an interview with Globes.
Dr. Lior David-Por has full access to the macroeconomic data of Israel's economy, monitoring online the cash flows of the 700 billion shekel state budget. In an interview with Globes, he discusses the state deficit, military spending, and the upcoming reforms in budget control.
The deficit target set by the Knesset during the approval of the state budget stands at 4.9%. In recent months, it has stabilized at slightly over 3%, though this is largely an illusion as the primary financial expenditures typically occur in the final months of the year. Nevertheless, market economists estimate that the deficit will remain below the target due to positive tax surprises.
"Not only is it difficult to predict the future, but we also don't know the past because we see GDP data being updated retroactively," David-Por says. "Given that there are no extraordinary security developments and no significant blowout of expenses because the Ministry of Defense needs more money, and assuming the current revenue pace continues, we will not only meet the 4.9% target, but we might even be below it."
Controlling Military Spending and Defense Budgets
In recent weeks, active governmental discussions have taken place regarding the possibility of breaching the state budget to add tens of billions of shekels to defense and to secure a 400 billion shekel military procurement buildup program for coming years, despite the election period context.
"The Chief Economist in the ministry increased the revenue forecast by 19 billion shekels since the budget proposal. So as long as the increase in expenditures matches the increase in revenues, meaning the deficit target is preserved, I think that is the most important thing. Therefore, if it's about 19 billion shekels, that is still reasonable," he explains.
Bank of Israel Governor Prof. Amir Yaron showed that the 400 billion shekel military buildup program would spike the debt-to-GDP ratio to over 80%, compared to the current 67.9%. Responding to this, the Deputy Accountant General noted: "During COVID, we stood at a debt-to-GDP ratio of about 70%, but within two years of recovery, we returned to 60% and reached October 7 with a deficit of 1%. When the economy slows down, the government spends more money, and we did this very quickly along with tax hikes. Now, the budget will need to be built gradually and correctly so that we manage to return to our ratios of around 60%."
Budget Transparency and Accountant General Oversight
David-Por's unit is also responsible for overseeing budget expenditures across government ministries through accountants subordinate to the Accountant General. A recently published State Comptroller's report severely criticized the handling of budget transfers during the year, noting instances where massive budgets were transferred late at night on the final day of the fiscal year.
"The accountant is a gatekeeper. The practices that were customary and accepted for years often put the accountant in an impossible position of conflicts between laws, contractual obligations, or salary payments," he stated. "The comptroller's report and the clear statement by the Supreme Court require significant changes by all parties regarding budgeting methods, scope, and timing of budget changes."
Concluding his remarks, the Deputy Accountant General acknowledged a lack of trust between various government bodies, which leads to power struggles. "Often, the budget is not given from the start but in drips and drabs to condition it on reforms and leverage it in negotiation methods, and sometimes that is good," David-Por thinks. "However, a deep change must be made, and we cannot clash all day long. I would prefer quiet and cooperation."
