Israel's State Watchdog Whitewashed Report on Budget Deficit, Staffers Say

Officials who prepared draft say final version neuters criticism of finance minister’s delay of bad news on overspending

Gur Megiddo
Gur Megiddo
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Benjamin Netanyahu and Moshe Kahlon at a government meeting in Jerusalem, December 15, 2019.
Benjamin Netanyahu and Moshe Kahlon at a government meeting in Jerusalem, December 15, 2019.Credit: Marc Israel Sellem/Pool photo via Jerusalem Post
Gur Megiddo
Gur Megiddo

Staffers in the office of Israel's State Comptroller Matanyahu Englman are refusing to put their names to a report on the treasury’s release of 2018 budget deficit data, which they say Englman amended to soften its conclusions.

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The unusual action came in response to the major differences between the draft version of the report written by the staff and the version due to be published. Staffers say Englman made the changes without offering them adequate explanations. In response, Englman told the team, which was led by Tzachi Saad, that he would release the report as he edited it.

The heart of the original report is a critique of how the Finance Ministry used inappropriate methods in a report it released in November 2018, which made the budget deficit look less severe than it really was. It documented pressure exerted by Finance Minister Moshe Kahlon and director general Shai Babad on senior officials in the treasury and Israel Tax Authority to ensure that the final 2018 deficit would come out on target.

The pressure came as Kahlon’s Kulanu party was gearing up for the April 2019 general election and wanted to boast to voters of its achievements at the treasury.

For the same reason, according to the state comptroller’s report, Kahlon and Babad also sought to delay the release of the forecast 2019 budget deficit. Originally due to be published in November 2018, it was delayed – but only by two months due to resistance by treasury officials to postponing publication any longer.

The story behind the state comptroller’s report starts with an event in January 2019 to honor Finance Ministry staff three months before the election. At the event, Kahlon declared that in contrast to forecasts showing that the 2018 budget deficit would be billions of shekels over the official target of 2.9% of gross domestic product, it would indeed meet it.

“It’s not 3.6%, not 3.5%,” he said in response to forecasts issued by private sector economists. “We have met the forecast exactly, … we haven’t deviated an agora. …. Now, they’re telling you that we’re playing games with the numbers … [but] all the numbers are monitored by international companies and by the World Bank. ... They’re not children.”

The original draft of the state comptroller’s report was prepared under the previous state comptroller, Joseph Shapira, based on emails and text messages exchanged between officials in the treasury and tax authority, which revealed the pressure they were feeling from Kahlon’s bureau to improve the bottom line of the 2018 deficit. The changes Kahlon’s staff was demanding would not have improved the state’s finances but would have put off the worst news until after the election.

Among other things, the comptroller’s team found cases of payments that were supposed to be made by the government being delayed from 2018 to 2019 and pressure on tax officials to step up collections during the last month of the year. The latter aroused fears that tax assessors would end up compromising in disputes with taxpayers to collect money quickly even if it wasn’t in the government’s long-term interests.

Among the changes Englman made is in the chapter that addresses the implications of the report on individuals, most notably Kahlon and Babad. He also decided to leave out any criticism of the pressure Kahlon’s staff exerted.

State Comptroller Matanyahu Englman attends a ceremony in central Israel, September 3, 2019.
State Comptroller Matanyahu Englman attends a ceremony in central Israel, September 3, 2019.Credit: Ilan Assayag

After Englman appeared before the Knesset Finance Committee December 9 on matters relating to his office’s budget, his office released a statement that said, “While there were professional teams that held one point of view, there were other professional teams that felt differently, including the [office’s] legal adviser, which needed to make a final decision on the matter.”

But officials in the State Comptroller’s Office have said in recent days that the statement is misleading and that there was no disagreement among the professional teams involved or with the office’s legal adviser. They assert that the only dispute was between Englman and the team that prepared the report and that the latter is not prepared to stand behind it.

In response, Englman has told the staff that under the law he has the authority to sign off on reports at his sole discretion and will release his approved version only. The final version awaits responses from the officials named in it, his office noted in a statement.

“The findings contained in the draft are preliminary and not definitive and final, as the draft is intended to allow those cited in it to explain their actions. When the procedure is completed, the report is made public as usual,” Englman’s office said.

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