The Cost of the Coalition: $2 Billion and Counting

Negotiations are continuing, but a picture is emerging of winners and losers: Netanyahu and ultra-Orthodox parties are on top, while Likud, Naftali Bennett and Avigdor Lieberman probably wish the election never happened.

Finance Minister Moshe Kahlon, left, and Prime Minister Benjamin Netanyahu.
Reuters

The Finance Ministry and the Prime Minister’s Office are scouring the state budget for the estimated 8 billion shekels (around $2 billion) the coalition agreements are expected to cost.

Sources close to the negotiations between Likud and the junior parties say the sums can come out of the 2015 budget now being hammered out, noting that the latest estimate for tax revenues is 3.5 billion shekels above the forecasts on which the budget was based.

Officials expect the surplus to be even higher by the end of the fiscal year.

According to the sources, additional funding could be found on the expense side of the budget, which is expected to be lower than originally forecast.

Since January, the government has been operating on a month-by-month budget, based on 2014 figures. It will continue to do so until the final budget is approved, at the end of October, which should enable some budgetary belt-tightening until then.

That is what allowed Prime Minister Benjamin Netanyahu and his designated finance minister, Kulanu chairman Moshe Kahlon, to be generous toward the other coalition partners.

On Wednesday, Netanyahu is expected to meet with President Reuven Rivlin and announce a new government.. Below, the winners and losers — for now — of the coalition talks.

At the top of the winners’ list is Netanyahu. The prime minister is expected to sign coalition agreements with Shas and with Habayit Hayehudi within a few days. Netanyahu also wants Yisrael Beiteinu in the coalition, which would give him a government based on 67 of the Knesset’s 120 lawmakers.

In order to make everyone happy, he gave the most important cabinet posts to his coalition partners, boost the number of ministers to 22 from 18, and deputy ministers to seven or eight.

In addition, he has promised to increase spending on social services primarily to meet the coalition demands of Shas and United Torah Judaism. Measures include a rise in child allowances, a pay raise for soldiers in their final year of service, the addition of a second aide to each kindergarten class and a rise in old-age allowances.

Netanyahu left three ministries he considers important in the hands of Likud: communications (so that he can control the media), justice (so that he can appoint an attorney general after his own heart) and public security (so that he can influence the choice of the next police commissioner.)

Kahlon got the toolbox he demanded for Kulanu — the Finance Ministry; chairmanship of the housing cabinet; and the Planning Administration, which will be transferred from the Interior Ministry and the power to appoint the heads of local planning committees; the Israel Land Authority. His party is also getting housing and construction and of environmental protection ministries. Kulanu will also get a deputy minister’s post and will chair the Knesset Labor, Welfare and Health Committee.

Kahlon has not yet decided by how much to raise the sales tax on homes bought for investment. The coalition agreement contains a clause on the issue, but mentioned no figures.

The Finance Ministry’s budget division recently proposed raising it to 25% from the first shekel, from the 3% to 10%.

Of all the politicians in the next government, Kahlon will be judged most by results, by whether he meets his campaign promises to reduce the cost of living and housing and to enact reforms in the banking sector, small business and the financial markets.

Haredi gains

The ultra-Orthodox parties are perhaps the biggest winners of all. They suffered in opposition exile for two years, but now United Torah Judaism’s Yaakov Litzman returns to the Health Ministry as deputy minister with the authority of a full minister, while Moshe Gafni will head the powerful Knesset Finance Committee.

In addition, Meir Porush will be deputy education minister, Uri Maklev will head the Knesset Science and Technology Committee for half a term. Israel Eichler will be deputy speaker of the Knesset.

Most important of all, the party’s budgetary demands were met, rescinding cuts to child allowances and to ultra-Orthodox institutions made by former finance minister Yair Lapid, at an estimated cost of 4 billion shekels.

Arye Dery, the head of Shas, the other big Haredi party, had to give up his cherished hopes of returning to the Interior Ministry, but gets the Economy Ministry and an additional portfolio (probably Social Affairs).

He is also expected to be named religious services minister, but this is still a point of dispute with Habayit Hayehudi. In addition, Yitzhak Cohen is slated to receive a ministerial (or deputy ministerial) position in the Finance Ministry. Both Meshulam Nahari and Yakov Margi are expected to be named deputy education ministers.

Dery announced over the weekend that he had persuaded Netanyahu to eliminate the value-added tax on price-controlled food products, which will cost the govenrment about 1 billion shekels in lost revenue.

Netanyahu had promised the move in his election campaign but reversed himself due to opposition from economists in the treasury and the Bank of Israel.

It’s not clear whether the measure will be carried out by lifting the VAT on certain goods or by adopting Kahlon’s proposal, which calls for expanding negative income tax and increasing allowances for single parents and for the elderly.

The Economy Ministry has warned that if domestically manufactured foods are made VAT-exempt, imported products will also have to be in order to comply with Israel’s international obligations. Such a measure would double thje lost revenues.

Shas officials say that they have an agreement with Likud to allocate 5% of land rezoned by the Israel Land Authority to public housing, but it’s unclear how this will be implemented. Kulanu has suggested that the government purchase public housing for the benefit of those entitled to apartments, but this will cost hundreds of millions of shekels.

Habayit Hayehudi’s Naftali Bennett has been left by Netanyahu to stew for a long while during the coalition negotiations.

No Jerusalem for Bennett

Bennett was offered the education portfolio through reports in the media; before the election, Netanyahu promised him the Defense Ministry. Ultimately, Bennett agreed to accept the Education Ministry, after being subjected to heavy pressure from his party. He will also get the Diaspora Affairs portfolio, with responsibilities for Jerusalem affairs as well, a position he held in the previous government as well.

He won’t be designated a minister for Jerusalem affairs, a position being eyed by Jerusalem mayor and Netanyahu confidant Nir Barkat.

The opposition in Netanyahu family circles to appointing Ayelet Shaked to the cabinet has been removed. She is expected to become culture minister. Uri Ariel will be agriculture minister, with responsibility for the World Zionist Organization’s settlement division. Nissan Slomiansky has been mentioned for a deputy ministerial post or as a candidate to head the Knesset Constitution, Law and Justice Committee. Making the settlement division’s activities transparent will depend on him.

Habayit Hayehudi is demanding that Eli Ben-Dahan be appointed deputy religious services minister. In view of Dery’s opposition, it has been proposed that Ben-Dahan instead receive a deputy minister position in the Justice Ministry, with authority over the rabbinical courts. The Authority for Jewish identity is expected to be moved from the Prime Minister’s Office to the Education Ministry.

Last week Bennett demanded an additional billion shekels to add a second aide in kindergarten classes. Some understandings over this were reached and the funding for this is being sought.

Habayit Hayehudi officials said that the commitments to the ultra-Orthodox and the addition of kindergarten aides cannot come from the education budget. People close to the negotiations said that there were sufficient funding sources at the Education Ministry and other funding can be located at the treasury.

Avigdor Lieberman has been promised the foreign and immigration absorption portfolios, even though his Yisrael Beiteinu party declined to just six Knesset members. He is still in negotiations with Netanyahu.

Lieberman is demanding that 5% of new homes be set aside for public housing, as well as government guarantees for mortgages of up to 90% of the value of a home .

Lieberman suffered a big setback with the deal made with the ultra-Orthodox to change the laws dealing with conversion and making it easier for yeshiva students to avoid army service.

Ironically the biggest loser in the coalition deal in the making is Netanyahu’s Likud party.

Despite winning an impressive 30 Knesset seats, senior portfolios have been handed out to coalition partners.

Moshe Ya’alon and Yisrael Katz will stay on as defense and transportation ministers, respectively, but Gilad Erdan, Yuval Steinitz and Silvan Shalom had hoped for promotions.

Erdan may get the trimmed-down Interior Ministry and the Public Security Ministry and Steinitz may get the Justice Ministry, despite his wife’s being a judge). It’s unclear whether Shalom will remain minister of energy and water resources.

Competing for remaining portfolios are Ze’ev Elkin, Yariv Levin, Miri Regev, Gila Gamliel, Ofir Akunis, Benny Begin, Tzachi Hanegbi, Haim Katz and Tzipi Hotoveli.

The National Insurance Institute is pleased about the promised rise in child allowances, which will cost 2.6 billion shekels annually. The cost of raising them, effective as of this month, is 1.5 billion shekels.

Moreover, the agreement calls for the cuts that were instituted in August 2013 to be rescinded. The allowance for a first child born after May 31, 2003 will be 175 shekels a month, while the second, third and fourth children will each receive 263 shekels a month. Thus, in November, families with children under 18 will receive several thousand shekels retroactively.

A family with three children will get 4,200 shekels and one with four children will get 5,800 shekels subsequently.