Deadlock Between Likud and Yesh Atid Could Scuttle Budget, Structural Reforms

Gaps between prime minister and finance minister’s parties grow, with private health care provision proving particularly troublesome.

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The schism and lack of trust between the parties of Prime Minister Benjamin Netanyahu and Finance Minister Yair Lapid could ultimately scuttle parliamentary approval of the 2015 government budget, Knesset sources warned over the weekend.

That would also block the pending Economic Arrangements Bill, the supplementary legislation that accompanies the budget. And this time around, the Arrangements Bill contains significant reform provisions.

Likud and Yesh Atid are deadlocked over the budget, with each party appearing to be waiting for the other to blink first. The mistrust between the parties could also doom Lapid’s flagship legislative initiative to exempt qualifying buyers of new residential construction from the 18% value-added tax.

Meanwhile, the divide that first surfaced between the two parties last Monday is exacerbating the stalemate, with distrust growing each day as the crisis persists.

Likud has been unwilling to relent on referring a provision in the Arrangements Bill, which would limit the activities of private hospitals, to the Knesset Labor, Welfare and Health Committee. The Knesset committee is chaired by Likud MK Haim Katz, and Yesh Atid is concerned that he will defeat the provision in committee.

The proposed limitation on the activities of private hospitals is based on a recommendation of a panel that was headed by Health Minister and Yesh Atid MK Yael German.

But Finance Minister Lapid, who heads Yesh Atid, did in fact hash out an agreement last week with Foreign Minister Avigdor Lieberman (Yisrael Beiteinu), in which Lapid agreed to have a provision of the Arrangements Bill – taxing medical services provided to foreign tourists who come here for medical treatment – referred to the Knesset’s labor committee for consideration.

Also last week, Katz said he would hold a substantive and thorough debate on the health-care provisions of the Arrangements Bill. However, he did not promise that the medical tourism provision would pass his committee.

Knesset sources note that the Assuta medical organization is building a hospital in Ashdod that is also due to provide private medical care. Likud and Yisrael Beiteinu both have significant numbers of party members in the port city and – so sources say – limitations on private medical treatment at the new hospital would adversely affect the plans. This in turn would not sit well with the parties’ members in the city.

On the other hand, Health Minister German and MK Ofer Shelah – Yesh Atid’s Knesset faction chairman – insist on the passage of the provision this year. “I’m not threatening,” German said over the weekend, “but I have made it clear to anyone who needs to know that I will not be able to take responsibility for the health-care system if the limitation on private medical care is not approved at this time.”

March 31 deadline

When it comes to the broader picture, the 2015 budget is due to go into effect on January 1. If it is not passed by then, the government will begin the coming year with spending provisions based on the 2014 spending allocations. Failure to pass a budget by next March 31, however, would automatically trigger a new Knesset election – a prospect that neither Likud, Yesh Atid, nor most other coalition partners would relish.

A prior dispute that has been smoothed out relates to the Jewish National Fund, the organization founded in 1901 to acquire and develop land in Israel in trust for the Jewish people. Initially, the Arrangements Bill would have forced the JNF to turn over proceeds from the sale of JNF land administered by the Israel Land Authority. Now, though, there is an agreement for the JNF to pay the state 1.3 billion shekels ($341 million) by consent, rather than enacting legislation on the matter.

Another remaining bone of contention, however, is a provision that would authorize the sale of shares to the public, giving them a partial stake in government companies. The proposal has been split off from the Arrangements Bill and received the Knesset’s backing in the first of three necessary votes. Likud is prepared to compromise on what is now a separate bill and agree to expedite the legislative process, but only with respect to share offerings that had been scheduled for next year. The other offerings according to the Likud formula would require separate legislation to be passed next year.

Economic sources said it was not clear that a plan to issue shares in government companies would stand the test of prevailing realities. The ministerial committee on socioeconomic issues has already approved a plan to reduce the state’s holdings in a number of government companies, including Israel Natural Gas Lines (a minority share of which would be sold); Israel Military Industries (which would be sold to a single investor); the Israel Post postal service; Halamish, which is engaged in urban renewal activities; Otzar Mifalei Yam, which operates the Tel Aviv port entertainment district; and the Old Jaffa Development Company, which was founded in 1961 to redevelop Old Jaffa.

Also in dispute is a provision that would cut the size of the public service workforce. Likud is vehemently opposed to approving such a cut this year.

With regard to Lapid’s VAT exemption legislation for certain first-time buyers – which is not part of the budget package – a vote had been scheduled for tomorrow by the Knesset Finance Committee. There are now indications, however, that the vote may not go forward.

Knesset Speaker Yuli Edelstein (Likud) announced that, one way or another, he will not have the VAT legislation voted on by the Knesset in the final two readings that would complete its legislative process – unless some of the reform provisions in the Arrangements Bill are removed and made regular legislation. That in turn could spell the end for Lapid’s exemption plan.