Cost of Yisrael Beiteinu’s Joining the Coalition Comes to Just $360 Million

Extra spending will go to enlarged income supplements for pensioners. The party also agrees to a two-year budget and reforms in defense spending.

Avigdor Lieberman, head of far-right Yisrael Beitenu party, (L) and Israeli Prime Minister Benjamin Netanyahu deliver statements to the media after signing a coalition deal to broaden the government's parliamentary majority, at the Knesset, the Israeli parliament in Jerusalem May 25, 2016. REUTERS/Ammar Awad
Ammar Awad, Reuters

Prime Minister Benjamin Netanyahu and his finance chief have brought Avigdor Lieberman’s Yisrael Beiteinu party into the governing coalition at a relatively low cost to the budget.

In talks that stretched overnight into Wednesday – in part because Finance Minister Moshe Kahlon was attending a soccer match that decided the country’s championship – Lieberman agreed to a 1.4-billion-shekel ($360 million) increase in income supplements to pensioners.

The sum was far less than the 3 billion shekels Lieberman had initially sought. It was also within the ceiling Kahlon had set earlier in the week, warning that he wouldn’t let a coalition agreement with Yisrael Beiteinu ride roughshod over the budget.

In addition to the 1.4-billion-shekel supplement, Lieberman also won a commitment for 150 million shekels to the budget for public housing. But Kahlon said the 150 million was already in the budget, and of the 1.4 billion for pensions, 350 million was already in the budget.

The coalition negotiation came as Kahlon faced contradictory goals. This first is to keep to his commitment to increase spending and narrow Israel’s yawning socioeconomic gaps. The second is to prevent the deficit from growing.

Shai Babad, the Finance Ministry director general, told an economic conference in Jerusalem on Tuesday that the government’s two goals in the 2017-18 budget were to reduce social gaps and boost economic growth and labor productivity. Much of this would be achieved by increased spending on health and education.

The treasury has been collecting taxes far in excess of its targets, leaving it with an unexpectedly low budget deficit four months into 2016. But earlier this month treasury officials warned that they faced a 15-billion-shekel fiscal hole in 2017 because of spending commitments above projected revenue.

Lieberman not only backed down on the size of the income supplement for pensioners, he also agreed that no preference could be given to retirees who emigrated from the former Soviet Union.

Russian immigrants are Yisrael Beiteinu’s core constituency and many face severe financial problems as they reach retirement age because those who came middle aged didn’t accumulate enough pension savings. But Kahlon insisted that any extra money had to be distributed equally among all pensioners.

How the extra 1.4 billion shekels will be allocated has yet to be decided by Finance Ministry officials, but it is likely to work out to small sums. Estimates are that old-age allowances of 3,000 shekels a month will grow by 300 shekels for the four-year life of the supplement, which runs from 2017 to 2020.

In addition, the top income on which pensioners will be entitled to discounts for services like electricity and water will be raised to as much as 4,500 shekels a month from 4,200.

Lieberman also agreed to accept the status quo on other key economic issues, including Netanyahu’s plan for a two-year budget covering 2017-18. There is also the trade-off of extra defense spending in exchange for army fiscal reforms that Kahlon reached with Moshe Ya’alon, whose job as defense minister Lieberman is inheriting.

Yisrael Beiteinu did win itself a seat on the Knesset Economics Committee, while Netanyahu agreed that the party’s other minister, Immigrant Absorption Minister Sofa Landver, will sit in the socioeconomic cabinet.