Israel knows short wars and military operations very well. Whenever the country is in a combat situation, it affects the civilians and national infrastructure as well. You cannot fight wars and carry out military operations without damaging the commercial sector. For this reason, especially in the Second Lebanon War, increasingly clearly defined criteria were set for the state to compensate business owners directly affected by the fighting. The underlying principle is that you cannot place the burden of war damage on businesses that are directly affected in a defined geographic area. War affects everyone; even if the damage caused to the commercial sector is mostly in a defined geographic area, all citizens must bear the burden as equally as possible. This is a consequence of the principle of equality, an important foundation of our national resilience during combat situations. During the Second Lebanon War, an initial proposal for compensation was made by the Finance Ministry and the Coordinating Bureau of Economic Organizations. It was highly flawed because it was formulated quickly and with a narrow vision. The arrangement intended to ensure compensation only to industrial establishments and their employees. Slowly, however, the Finance Ministry, with much Knesset support, understood that it would not ignore the largest part of the commercial sector, which is trade and services. Sixty-five percent of commercial sector profits in Israel are from the trade and services field; 69% of employees in the country work in the trade and services sector. This sector is mainly based on many small and medium-sized businesses. Let us understand the situation better: Israel has 480,000 businesses, of which 375,000 have a turnover that does not exceed a million shekels (about $256,000) annually, and 75,000 of which have commercial cycles that do not exceed five million shekels (about $1.3 million) annually. Private businesses are not a simple burden. Behind every business there is a family or two, struggling hard to maintain their source of income. When there is a state of war, such as the Second Lebanon War, Operation Cast Lead or the current Operation Pillar of Defense, businesses across the commercial sector are severely impacted, regardless of the nature of their activity. Revenue decreases but fixed expenses continue and inventory builds up and ages. The Finance Ministry and the government quickly internalized that the state must compensate across the commercial sector. There can no longer be selective compensation only to industrial establishments and their employees; there must also be compensation for the hundreds of thousands of small and medium-sized businesses in trade and services. Israel has adopted the principle that when providing compensation during a state of war there must be no sectorial discrimination. Over the years, various criteria have been devised and improved to calculate the level of compensation, based for example on reductions in turnover, the salaries of absent workers, and ongoing expenses. Each alternative method of calculating compensation is available, to be chosen by the business itself. Also, the Finance Ministry's mechanisms for distributing the compensation have become more sophisticated over the years. The Tax Authority has demonstrated high efficiency, with reduced bureaucracy, red tape and unbearable paperwork; instead, compensation is based on previously reported commercial data. Equally important is that Israel's economy has proven since the Second Lebanon War that it is able to cope with large-scale warfare without a dramatic impact on the economy. The best example of this is during that war, which lasted 34 days, from July 12 to August 14, 2006. During the combat, the country's gross domestic product rose by 5.8% and commercial output increased by no less than 6.7%. These are impressive growth rates, demonstrating that providing adequate compensation to businesses also strengthens the national economy overall and, ultimately, contributes to growth. Indeed this does involve budget costs. There can be no fighting without additional spending. But if we examine data from 2006, we see that the government deficit decreased from 2.4% in 2005 to 1% in 2006. If the Israeli economy could successfully handle the Second Lebanon War, it can certainly deal with the current state of war. Indeed the data has changed over the years. The growth rate today is not what it once was, when the economy was more consistently growing. But the compensation criteria were set in the past and now we have more sophisticated mechanisms to cope with the situation.
