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Saturday, January 8, 2005
Source: Disengagement cost is grossly underestimated

Source: Disengagement cost is grossly underestimated [and more to come]
By Nitzan Cohen and Zvi Zrahiya Haaretz 7 Janaury 2005
www.haaretz.com/hasen/spages/524112.html

[IMRA: These estimates also assume that the tax-accounting based estimation
method used for compensating settlers will stand up in court. Israel intends
to compensate businesses based on the depreciated value of their facilities
rather than market value. For example, a hot house with equipment that has
an operating life of another 20 years could have a value of close to zero or
zero on the books because it has been depreciated for tax purposes. The
accounting book value also does not take into account capital improvements
carried out by the farmer's own labor.

Until now when Israel took property under the exercise of the right of
eminent domain compensation was based on fair market value - not accounting
book value. A court ruling rejecting the radical departure to a
tax-accounting based estimation method would dramatically increase the
compensation costs.]

Treasury sets NIS 5b price tag; military says it's far more

The total cost of withdrawing Israeli forces from Gaza will reach NIS 5
billion, according to the Finance Ministry; the political and defense
establishments believe, however, that the true cost could leap to as much as
NIS 6 billion. This translates to about 1.1 percent of gross domestic
product, and is triple the amount the treasury originally earmarked for the
pullout in the government's 2005 budget.

The treasury, nevertheless, is sticking to its estimate; and in a statement
released yesterday, Budgets Director Kobi Haber confirmed that the cost of
the disengagement would be NIS 5 billion. Of this sum, NIS 2 billion is
designated to cover the costs of the defense establishment, the IDF and the
police, with the remaining NIS 3 billion to be spent on compensation for
residents and businessowners who will be evacuated from the Gaza Strip and
parts of the northern West Bank.

However, a military source revealed yesterday that the cost the army would
have to bear was far beyond the amount the treasury had allocated.

The army has been allocated NIS 1.7 billion for redeployment. But it
estimates that the cost of moving army bases and redeploying the forces will
come to more than NIS 2 billion, with this sum not including the cost of
calling up reserve forces, or the extra cost if hostilities erupt between
the army and the settlers, explained the military source.

He added that the army had not finished preparing its plans. Disengagement
was scheduled for July, but until the plans were finalized, the cost would
not be clear, he said.

A Defense Ministry source confirmed yesterday that the army had been
allocated NIS 1.7 billion to implement the plan being promoted by Prime
Minister Ariel Sharon. But the ministry itself concurs that the actual cost
will exceed NIS 2 billion by a long shot, and could reach NIS 2.5 billion,
the source added. Again, this sum does not factor in the costs involved if
the settlers oppose the evacuation.

In recent weeks, the Defense Ministry has been given several essentially
civilian missions in respect to the disengagement plan. None was budgeted
for in the original plan.

One such civilian mission imposed on the army is housing the evacuated
settlers in prefab structures until they are rehoused on a permanent basis,
said the source. Another relates to storing and protecting the settlers'
possessions during the evacuation process.

Other costs left unbudgeted involve adding protection to the southernmost
towns of Israel, such as Sderot, which could become more vulnerable to
attack once Gaza is evacuated. Afula may also come under threat because of
its proximity to evacuated areas in the northern West Bank.

To sum up, there is a gap in the budget of some NIS 3-4 billion, say the
sources. And this, they say, does not include the extra cost to the treasury
of Sharon's coalition promises to his new partners, the religious parties
and Labor. Altogether, the budget is missing about NIS 6 billion.

Until now, the Americans have refused to finance any of the disengagement
project. Unless they change their minds, the only resources would seem to be
tax hikes or to allow a greater budget deficit in 2005.

Lifting the target

In his original presentation of the 2005 budget last month, Finance Minister
Benjamin Netanyahu announced he would be lifting the deficit target by 0.4
percent of gross domestic product, with the aim of freeing NIS 2.2 billion
to pay for the disengagement. Any cost beyond that would have to come from
budget cuts at the ministries, he explained.

The budget, however, was thrown out in its first reading, and Netanyahu will
resubmit the government's budget for 2005 to the Knesset on Monday, together
with the Economic Arrangements Bill, which traditionally accompanies the
budget.

The bills are being resubmitted following the establishment of a new
coalition. They are expected to pass their first Knesset reading, and will
then move on to marathon discussions in various Knesset committees before
the final votes.

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