Netanyahu, Kahlon Agree on Budget Reforms Ahead of Cabinet Meeting

Arrangements Bill to include clauses on banking competition, property, cutting red tape.

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

Prime Minister Benjamin Netanyahu and his finance minster, Moshe Kahlon, have agreed on a long list of reforms that will accompany the 2015-16 budget, including plans to split credit card companies from the banks and speed the rezoning of farm land for housing.

The two agreed on the reform package ahead of the cabinet’s first deliberations on the budget slated for Sunday.

Meanwhile the Finance Ministry’s chief economist, Yoel Naveh, told the two that the treasury was forecasting stronger economic growth in 2016, with gross domestic product expanding at 3.3%. That is lower than the Bank of Israel’s forecast of 3.7%, but a higher rate of growth than this year’s forecasted 3.1% and 2014’s 2.8%.

Levi, who estimated based on his growth projections that the budget deficit would be 2.89% of GDP, said that Israel’s growth rate would be influenced mainly by the global environment. Domestic factors like low unemployment and a growing labor force participation rate would also lift economic growth, he said.

Naveh estimated that government tax revenues would reach 265.4 billion shekels ($70.4 billion) this year and 276.3 billion in 2016, up from 254.7 billion in 2014. The forecasts for this year and next, however, are conservative, with treasury officials forecasting off the record that tax collections will reach 272 billion shekels this year, and between 285 billion and 290 billion in 2016.

Naveh warned that his optimistic growth scenario would be upset by rising world interest rates, which would in turn slow economic growth – as well as by regional geopolitical events such as last year’s Operation Protective Edge, which cut third-quarter growth to just 0.8%.

At the top of the list of reforms that will go into the Budget Arrangements Bill – the legislation accompanying the budget that spells out economic reform needed to put the spending package into place – is a plan to force Israel’s banks to divest their credit card-issuing subsidies in order to create more competition in lending.

Spinning off the credit card issuers is one of the subjects now being examined by the Strom committee on banking competition – creating a database of credit histories as well as easing the way to non-bank lending by permitting non-bank lenders to issue bonds in order to raise capital.

In real estate, the Arrangements Bill will include new rules allowing for agricultural lands rezoned for construction to complete all the bureaucratic requirements on a fast-track basis of three months, instead of 10 years as is the norm now.

In the natural gas sector, the Arrangements Bill will include clauses speeding the process of hooking up some 2,000 industrial plants in Israel’s periphery to the natural gas pipeline network, giving them access to cheaper energy from the Tamar field.

A reform that would entitle the self-employed to unemployment benefits will be included in the Arrangements Bill if the current stand-alone legislation, which passed the first of three readings it needs to become law in the Knesset this week, fails.

The ambitious reform agenda comes in sharp contrast to the stance of Yair Lapid, the previous finance minister, who acceded to critics who have long said the Arrangements Bill was exploited by the treasury to pass unpopular legislation and was undemocratic.

But Netanyahu and Kahlon see the Arrangements Bill as an efficient way to enact reforms.