Despite war needs, Israel's military should not get a 'blank check' -cenbank chief

FILE PHOTO: Bank of Israel Governor Amir Yaron

By Steven Scheer

RISHON LEZION, Israel (Reuters) - Bank of Israel Governor Amir Yaron on Thursday backed the establishment of a committee to examine Israel's defence budget, saying the ongoing war does not necessitate a "blank check" to the military.

Yaron has been urging such a step since January, when lawmakers approved an amended wartime budget that added tens of billions of shekels to finance fighting in Gaza and on the Lebanese front, now in its eighth month.

He has long called on the government to make fiscal adjustments to prevent the budget deficit from spiralling out of control due to the spike in defence and other war costs.

"A prosperous economy requires security, and security requires a prosperous economy. Therefore, the war should not bring with it a blank check for permanent defence expenditures, and proper balances have to be found," Yaron said at a conference at the College of Management Academic Studies.

Prime Minister Benjamin Netanyahu has said Israel's defence spending as a percentage of gross domestic product has fallen in recent years - and that this would now change with a boost of 20 billion shekels ($5.4 billion) a year in additional outlays.

With the budget deficit at 7% of GDP in April, above a 6.6% target for 2024, and rating agencies cutting Israel's credit rating, Finance Minister Bezalel Smotrich had sought a panel to monitor defence spending. But this was opposed by Defence Minister Yoav Gallant until the two on Wednesday agreed to form a committee, according to Smotrich.

The defence budget spat - including Smotrich seeking a review of U.S. fighter jet purchases - fuelled already high tensions within Netanyahu's cabinet, which has been strained by divisions over the handling of the Gaza war. Smotrich is not in the same party as Netanyahu and Gallant.

Smotrich said that the Hamas attack on Israel on Oct. 7 and the subsequent Israeli offensive in Gaza undermined many basic assumptions of how the defence budget was managed. As such, defence spending needs to adapt to current threats, while maintaining a balance between security and the economy as a whole, he said.

Gallant was not available for comment.

Yaron said the committee should have been set up at the start of the year since the war looks to cost 250 billion shekels between 2023 and 2025.

"This is certainly a budgetary burden. In addition, the future defence budget is expected to grow on a permanent basis, with macroeconomic impact," he said. "The committee should examine these processes from an overall multi-year perspective, with an ongoing requirement for the defence system to increase efficiency."

($1 = 3.7189 shekels)

(Reporting by Steven Scheer; Additional reporting by Maayan Lubell; Editing by Giles Elgood)