Israel Bucks Trends And Raises Taxes And Defense Spending

(MoneyWatch)  The new Israeli government of Benjamin Netanyahu has announced their first budget. Unlike most countries across the globe struggling with finances they propose to raise taxes, run a large deficit, and increase defense spending significantly. This is counter to the trends where defense spending is taking whacks across North America, Europe and Asia.

Israel, though, is a special case with significant threats both internally and externally. The new government has come in after what has seemed a failed attempt to deal with Hamas in the Gaza Strip it is not surprising that the military budget would grow.

A priority is obviously defense against ballistic missiles from Iran and Israel has been working on their own system, Arrow, for about two decades. The United States has aided in developing this system through research, technology and funding. It had been thought that possibly with the new Obama administration's focus on cutting defense spending that Arrow would not be funded. Right now this turns out not to be true for the next year at least with Arrow 3 receiving full U.S. planned money.

Israel also is relying on its indigenous defense industry which is starting to see significant gains overseas with sales to India and Russia for example. High level so funding will allow greater development of new products that will also lead to more foriegn sales subsidizing internal defense spending. Every item sold overseas makes the price paid by the Israeli government lower due to production efficiencies and helps pay for the development costs.

Netanyahu is also in a situation where to maintain his government he needs the support of more right wing parties and the increase in defense spending is what they wanted for their support. Even so, Israel probably can use every penny they are spending on the military due to the current world situation.