Analysis

Bibi’s Appetite for Power Is a Danger to the Economy

Rumors are that Netanyahu wants to move the powerful budget division from the treasury to the Prime Minister’s Office

Prime Minister Benjamin Netanyahu during a weekly cabinet meeting in Jerusalem, May 12, 2019.
Emil Salman

The recent period of negotiations on the formation of a new government coalition has spawned two rumors, both relating to the Finance Ministry’s budget division, and neither is good news.

The first is that Finance Minister Moshe Kahlon plans to remove Shaul Meridor as the division’s director on the grounds that he leaked information about the budget deficit to Kahol Lavan party leader Benny Gantz that made the finance minister look bad. The second is that Prime Minister Benjamin Netanyahu is considering moving the division out of the Finance Ministry and into the Prime Minister’s Office.

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It’s doubtful that either of these events will actually happen, but the rumors show how important the budget division is. There are some who view it as nothing more than the state’s cashier, moving money from here to there on orders from above.

But the reality is that the budget division is far more than that – in some respects acting as the guiding hand of the Israeli economy. It’s the entity that designs the biggest economic reforms, monitors how the other ministries allocate their budgets and determines the government’s spending priorities.

With powers like that, it’s clear why an ambitious politician like Netanyahu would want the division under his control. Likewise, it’s obvious why Kahlon, who is likely to keep the finance minister’s portfolio in the next government, doesn’t want a division chief who speaks publicly about a budget hole that could reach 25 billion shekels ($7 billion) during the 2019-2020 period.

In any event, Kahlon is not the kind of politician who browbeats officials, and it’s doubtful that he will seek Meridor’s dismissal. But if Kahlon does return to the Finance Ministry, his relationship with Meridor will have to change.

Does Kahlon want to be foreign minister?

Rumor has it that Kahlon doesn’t actually want to be finance minister and is angling for the Foreign Ministry, but he denies that. He wants his old job back, but he doesn’t want his Kulanu Party to be the first to sign on to the next coalition agreement. First he wants to see what the other coalition partners get, in particular when it comes to their budget demands.

He is reasonably concerned that he may be forced to try to construct a budget under impossible circumstances. As Kahlon sees it, his four Knesset seats don’t give him much bargaining power in a 65-seat coalition. All he can hope for is Netanyahu’s backing.

Indeed, he needs the prime minster far more than he did in the outgoing government, when he commanded 10 Knesset seats. You can see how things will develop: Ministers will come with ambitious spending plans, Netanyahu will pass the problem on to Kahlon and Kahlon will pass it back to Netanyahu.

No one will want to play the bad cop, as happened in the last government: Neither liked the idea of the police getting 22 billion shekels in back pay, but neither of them wanted to be the one to deliver the bad news to the cops.

That could be why someone launched a trial balloon about transferring the budget division to the Prime Minister’s Office. It’s not the first time the idea has been raised. It was in 2009 and even back in 1996, when Netanyahu formed his first government. The model would be the U.S. Office of Management and Budget, which reports to the president.

But the United States is different. It’s a presidential system and Congress has the Congressional Budget Office to serve as a counterweight to the White House fiscal agency. It’s even arguable that the CBO is more powerful than the OMB.

The idea of moving budget-making powers to the PMO is part and parcel of Netanyahu’s goal to concentrate power in his own hands. In keeping with that, in the outgoing government, he won the right in the coalition agreement to lead efforts at communications reforms. Bibi doesn’t like powerful agencies beyond his control. If can’t control them, he will try to weaken them.

In Israel’s parliamentary system, in which the government has almost complete control over Knesset decisions, moving the budget division over to the PMO is a very bad idea – no matter who the prime minister is. Prof. Manual Trajtenberg, who once led the PMO’s National Economic Council, also thinks it’s a bad idea.

“It will undermine the independence of the division and independent economic policy making. It’s true that the division answers to the politicians, but it does a lot of things vis a via economic management that the ministers don’t get involved in. Having it answerable to the prime minister will end its independence. They won’t be able to take an opposing and professional point of view. They will do what they are told,” Trajtenberg said.

As one former senior official explained it, the present structure keeps the budget division one step removed from the prime minster: “The finance minister can’t do anything without the prime minister .… Likewise the prime minster can’t act without the finance minister. So, if the budget division is moved to the PMO, there’s only one decision maker and that upsets the balance in economic policy making.”

There is a lot of evidence that concentrated power over economic policy will lead to bad outcomes. That’s all the more so with Netanyahu, who already exercises control over defense and foreign affairs and is almost certainly going to be facing three criminal indictments. He won’t have any free time to preside over the economy.