Of the top three treasury officials who have quit in the last three months, Accountant General Rony Hizkiyahu’s departure was the hardest for Finance Minister Yisrael Katz and Prime Minister Binyamin Netanyahu to accept.
Israel has been operating since the start of 2020 without a state budget and no one can say for sure when one will be approved. As a result, the accountant general and his top aides effectively manage all government operations. That’s because any spending beyond the framework set for the 2019 budget, on which current spending is based, must be approved by committees they chair.
In contrast to two other recent resignations – Director General Keren Terner-Eyal and budget chief Shaul Meridor – Hizkiyahu was the voice of experience. At 71, he had capped a long career in the public and private sectors as the Bank of Israel’s banks supervisor before joining the treasury. Katz was in no hurry to see Hizkiyahu leave, as he did at the end of October.
“Two weeks before I left, they were still asking me if I was ready to consider delaying my departure,” Hizkiyahu said in an interview with TheMarker, excerpts of which appear below. “I didn’t give it a thought because there would never be an end to it. In another week there would be elections and a transition government that can’t appoint a new accountant general.”
The accountant general’s powers are so firmly anchored in law that even when Hizkiyahu took a one-day break, he had to formally sign over his powers to someone else. Since he stepped down, only the finance minister has those powers, an unsustainable situation.
If so, wasn’t it irresponsible of you to leave right now?
“No. I have been entirely responsible. I waited for a 2020 budget, I waited for the first election, the second and the third. During that period of uncertainty I didn’t threaten to resign. Then I waited for them to form a new government. When they did, I said I would wait for the budget. All of Israel believed that its leaders would hurry up and pass a budget within a month …. I never guessed they would act to delay the deadline. In Israel you can legislate anything. When I saw what was happening, I left.”
So, who isn’t being responsible?
“The politicians aren’t doing what the public wants them to do. The public wants stability and good government.”
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As master of government spending since the start of 2020, Hizkiyahu made it a rule not to approve any projects that he thought needed to await the approval of the next government. “The law allows [the budget] to be managed that way temporarily, for up to three months, but when it continues on for such a long time, it starts to get complicated,” Hizkiyahu said.
It got even more complicated with the onset of the coronavirus crisis and the cabinet began approving tens of billions of off-budget spending to cope with the crisis.
“I had to make sure that when money was being allocated for coronavirus, it really was for coronavirus. That’s why I insisted that coronavirus spending go through me,” he said. “You can’t say, ‘We’re budgeting billions of shekels to the educational system for the coronavirus and then use it to pay teachers.”
What’s happened is that this year there’s in effect been no ceiling on spending or the deficit.
“This year we’ve had the [extended 2019] budget running side by side with the coronavirus budget, and I think that next year we’ll have no choice but to manage two budgets again, even if a regular budget is approved. They need to be kept apart, otherwise we won’t be able to meet deficit targets and show that we’re within spending limits. That’s what everyone is looking at, in Israel and the international ratings agencies.”
Will it be harder for Israel to borrow money in the years ahead?
“Yes. I think my replacement won’t have an easy time. When I took the job, the economy was in good shape, the government was stable and the budget deficit low. But in the second half of my term I was coping with government instability. I hope that at least the second half of their term will be better.”
How will the markets relate to Israel’s growing debt at a time when debt is growing everywhere?
“I don’t know what kind of world awaits us. First of all, however, we need to cope with what is. Israel entered the crisis in good shape. Our debt-to-GDP ratio was less than 60%. So now we have the option of taking on more debt and borrowing to take advantage of low global interest rates. But imagine what would have happened if we had started the crisis with a high debt-to-GDP ratio. During good times you need to stick to limits so you can be ready for bad times.”
Israel’s next task, said Hizkiyahu, is to address the “deficiencies that have existed in governance and the budget-approval process so we can return to a certain ‘normalcy,’ along with dealing with the health-economic crisis.”
Just like someone with the coronavirus suffers side effects, the economy will also feel side effects going into the futureRony Hizkiyahu
“Just like someone with the coronavirus suffers side effects, the economy will also feel side effects going into the future. What is important is that we make sure that we’re not breaking the budget more than we need to and to preserve our economic growth engines.
“The State of Israel was supposed to suffer only mild harm from the coronavirus, because the economy isn’t reliant on tourism and our main growth engine, high-tech, isn’t supposed to be harmed by the crisis. So when our health situation improves, we’ll know how to recover.”
Israel’s other advantage, as the rating agencies recognize, is that over the years it has recovered from multiple security-economic crises within one to three quarters, Hizkiyahu said.
If so, why is everyone so worried about a ratings downgrade?
“I don’t know if we’re being threatened by one or not, but the agencies make their ratings based on indicators such as debt, the deficit, governance and issues connected with the state’s environment, such as the security situation. Vis a vis security, the situation hasn’t changed and there’s even been an improvement in the geopolitical situation because of the peace agreements.”
What issues did the agencies raise with you as accountant general?
“The ratings agencies were interested in the effect coronavirus had on the deficit …. The spending side has been high, but the income side has been surprisingly good. It’s clear the economy is still functioning and generating taxes .... In addition, we showed them how fast economic recovery was during the summer the moment we eased the lockdown.”