Should the ceasefire fail, the damage will grow, particularly if incoming tourism suffers a significant blow and if the the call up of tens of thousands of reserve soldiers will have to be funded for an extended period of time.
In such a case, the state budget deficit is expected to grow, requiring further cuts in the welfare and education budgets and other crucial activities.
"We will compensate all workers forced to stay away from their workplaces in the south following Home Front Command orders, and will take care of proper compensation for parents forced to stay home with their children following the decision to shut down schools," Finance Minister Yuval Steinitz told Yedioth Ahronoth on Monday after meeting with Bank of Israel Governor Stanley Fischer to discuss the state of the economy following the fighting in the south.
"We will look into ways to assist the small businesses which encounter difficulties following the fighting," Steinitz said. "We have already decided to postpone tax payments, the submission of periodical reports and national insurance payments for all residents located up to 40 kilometers (25 miles) from the Gaza Strip."
Steinitz added, "Clearly, there are army expenses and property damages we will have to fund, but at the moment the economy has not suffered a significant blow beyond the army's spending on the mobilization of reserve forces and the fighting and on compensating residents for property damages. The damages are not expected to last for a long time. The economy will not suffer any significant damage."
Sources with knowledge of Israel's economy estimate that the defense establishment will demand NIS 1-2 billion ($250-510 million) in compensation for war expenses. The first "bill", of NIS 750 million ($190 million), for additional Iron Dome batteries, has already been submitted. In this case, the United States will fund the expense.
The defense establishment expenses will include the cost of ammunition (every launch of an Iron Dome missile costs about NIS 250,000), the cost of the mobilization of hundreds of tanks and military vehicles for operational activity, the call up of tens of thousands of reserve soldiers, as well as accommodating, feeding, transporting them and arming them with expensive military equipment, thousands of Air Force sorties, fuel expenses to mobilize the forces, etc.
Economic growth to suffer
The damage to the civil economy is huge: Tens of thousands of soldiers have been recruited and left their workplaces. In addition, business owners in areas within the missile range are losing tens of millions of shekels in income and economic activity. The loss of proceeds in the commercial and services sector in the south is estimated at more than NIS 100 million ($25 million) a day.
Major damage has already been sustained by property – houses, roads, public equipment, infrastructure, vehicles, businesses, etc. These damages are already estimated at tens of millions of shekels a day.
The operation of the National Economy Emergency System will cost millions of shekels. Owners of small businesses will be compensated by the Tax Authority and receive major tax reductions, which will be subtracted from the State's income taxes.
The opening, renovation and maintenance of hundreds of bomb shelters will cost local authorities tens of millions of shekels, which will be fully demanded from the state coffers. The expenses of Magen David Adom, fire services, police, ZAKA and other rescue and emergency organizations are estimated at tens of millions of shekels.
Israel's economic growth is expected to suffer by 0.1% each week of fighting. Local production has also been damaged, and tourism is suffering too.
"The public will have to pay for some of the new war expenses," said a senior economy official.
Some 22,893 self-employed people work in the communities significantly affected by the fighting in the south, 1,241 of whom work in communities located up to 7 kilometers (4.5 miles) from the Gaza Strip, whose normal life has been completely disrupted and who cannot work.
The rest of the self-employed, about 21,652, work 7-40 kilometers from the Strip. These people can work, but are dependent on the existence of a fortified space in their workplace and on finding an arrangement for their children, according to figures released by the Lahav Israel Association of the Self-Employed.
These figures also reveal that the average daily proceeds of a self-employed person who does not employ hired work stands at some NIS 1,055 ($270), and so if the government compensates the self-employed for the loss of proceeds, the compensation could reach NIS 24.2 million ($6.2 million) a day.
If the government decides to fully compensate residents located 0-7 kilometers from Gaza and provide an average compensation of 50% to all other residents, the compensation for the loss of proceeds will amount to NIS 12.7 million ($3.25 million) a day.
Lital Dobrovitzky and Benny Barak contributed to this report