Israel’s push to take over Gaza City is expected to add $12.8b to its war bill

Israeli soldiers move with an Army vehicle and tanks near the border with the Gaza Strip. Photo / Getty Images

Israel’s push to take over Gaza City is expected to add US$7.5 billion ($12.8b) to the war bill through to the end of the year, according to an Israeli government official.

The added costs - equivalent to more than 1% of Israel’s gross domestic product - will pile onto the US$61b military tally for the almost two-year war in Gaza, which spread to Lebanon, Iran, Syria and Yemen.

Reservists’ salaries, ammunition, and missile interceptors make up the bulk of spending, the official said on condition of anonymity to discuss sensitive matters that haven’t been made public.

The move into Gaza City, the Palestinian territory’s de facto capital, is facing intense global opposition.

On the sidelines of this year’s United Nations General Assembly, France has recognised a Palestinian state, while Canada, the United Kingdom and Australia did so yesterday.

Israeli Prime Minister Benjamin Netanyahu’s Government says defeating the Iran-backed Hamas, designated as a terrorist organisation by the United States and the European Union, is a goal it won’t abandon despite growing international isolation.

With fighting approaching the two-year mark and the offensive on Gaza City expected to last for months, investors are keeping a close eye on the economic impact of the war.

Israel’s US$580b economy remains smaller than pre-war levels when adjusted for inflation and the Government borrowed a record amount from bond markets last year to help finance the conflict.

The Cabinet has asked parliament to pass an increase of US$9b to this year’s Budget, approved only six months ago, to cover the short war with Iran and previous combat in Gaza.

The target deficit will grow to 5.2% and, given the escalation in fighting, further revisions are possible.

The Israeli official provided a breakdown of Israel’s military spending over the past two years and its preparations for future conflicts.

The largest portion of the nation’s war-time expenditure so far has gone into payments to reserve soldiers, accounting for a third of spending, the official said.

Tens of thousands of Israelis have been called up since the beginning of the war and earn US$10,757 a month on average, 50% more than the country’s average wage.

While serving in the Army, reserve soldiers have their salaries matched.

Ammunition and missile interceptors are the second largest item, accounting for a quarter of spending, the official said.

Intercepting a single ballistic missile costs US$4.4 million to US$9m, Defence Ministry Director General Amir Baram said last week, noting that’s only 10% of the potential damage a direct hit in a heavily populated area would have.

He calculated a single Israeli attack on Yemen’s Houthis carries a price tag of around US$15m.

Separately, Israel is allocating about US$49b – an amount not far from its accumulated war bill - on long-term procurement to build up its military capabilities in the future.

That includes US$2.9b for an F-35 Squadron, US$2.8b in Sa’ar missile boats and US$1.5b for an F-15 Squadron. Over US$8.9b will be dedicated to research and development.

Following a 12-day war with Iran in June - which saw Tehran retaliate for Israeli airstrikes against its nuclear and military facilities - Netanyahu’s Government is accelerating preparedness for threats from far-off arenas like Iran and Yemen.

A new National Armaments Council is in the process of being established for that effect.

Sign up to Herald Premium Editor’s Picks, delivered straight to your inbox every Friday. Editor-in-Chief Murray Kirkness picks the week’s best features, interviews and investigations. Sign up for Herald Premium here.