Loud noise, big numbers (Hamodia, October 2)

At last, much later than usual and almost too late for doing the job properly, the process of legislating Israel’s state budget for 2015 is getting underway. The bad news on this front is that the country’s budget situation is the worst it has been in a decade. On the other hand, the good news is also that the budget situation is by far the worst it has been in a decade.

How that can be good news is a question that will have to wait for the next column. For now, let’s stick with the bad news story. The delay in preparing next year’s budget was partly the result of the ‘Protective Edge’ operation in Gaza during July and August, but was primarily due to a political struggle between Prime Minister Binyamin Netanyahu and Finance Minister Yair Lapid.

Only on erev Rosh Hashanah, September 24, did these two settle their differences, allowing the formal approval process to begin: First, the whole cabinet has to debate the budget proposal and vote on it and this stage must be completed and the budget presented to the Knesset by the beginning of October.

Then the entire procedure in the Knesset — a vote on the general outline of the budget to start with, then a detailed, sometimes line-by-line, debate and vote on each item by the Finance Committee, and finally another vote by the full Knesset on the final draft — must be completed by December 31, otherwise the law stipulates that the government will automatically fall and new elections be called.

However, since none of the party leaders wants elections now, this stringent timetable will be met. But it is already that the 2015 budget is a messy compromise. There is no need to start crunching the numbers — indeed, the easiest way to confuse people about the budget is to start tossing off numbers as big as billions or tens of billions. A billion in the national budget is much the same as a thousand in a regular household budget, but since big numbers confuse people, let’s skip them.

The political argument had very little to do with hard numbers, rather it focused on general ‘principles’ which, in many cases, were simply dogmatic statements.  Lapid staked out a series of positions which, even if most economists and even the top echelon of the Treasury disagreed with them, became critical for  personal and political reasons.

Thus, having launched the idea of granting an exemption from VAT to first-time home buyers, Lapid insisted that this must be included in the upcoming budget. At the same time, he repeatedly ruled out any tax raises to help close the budget deficit, nor was he willing to eliminate tax breaks available to companies and high-income earners. This approach, he claimed, will help the young middle class — his main voter base — although it will clearly do nothing for low-income households that pay little or no tax.

In the end, Lapid got his way on these issues, with Netanyahu apparently unwilling to have a showdown over them. The result is that the planned deficit for 2015 is 3.4% of GDP, whereas Netanyahu — and the Bank of Israel — wanted it not to exceed 3%. Whether this difference is meaningful is a matter of opinion and, again, Netanyahu backed down.

But Lapid’s effort to restrict the increase in the defence budget to a few billion shekels has failed. Defence Minister Moshe Ya’alon demanded much more and Netanyahu imposed a classic compromise — more than Lapid offered but less than Ya’alon sought. Everyone knows, however, that during the fiscal year, the army will demand and receive additional sums — big sums.

The net result is that the politicians are all reasonably satisfied, so that the stability of the coalition is ensured for another year. However, this result has been achieved by cutting corners, making optimistic assumptions and ignoring some underlying economic problems. Maybe that’s a small price to pay for sholom bayis in the coalition — but all it has bought is time, and no-one really knows how much.

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