New Generation of Israeli Lawmakers Fights Against Shady Budget Transfers

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A storm broke out at the end of last week when it was revealed that government funds flowing every year to West Bank settlements – compensation for the damages caused by the 2010 construction freeze – were going to the Yesha Council of settlers, which was using the money to advance its political goals. So Finance Minister Yair Lapid announced that he was freezing the funds.

But this strange compensation already raised eyebrows a few months ago when MK Stav Shaffir (Labor) started asking questions.

Shaffir, a member of the Knesset Finance Committee, noticed that every year Finance Ministry officials asked the committee for a transfer of 36 million shekels ($10.2 million) to settlements under the rubric “construction freeze.” As far as Shaffir and longer-serving committee members could remember, the last construction freeze took place in 2010.

So why in 2013 was the treasury still transferring funds, and why was this being done via an unusual budget transfer after the original budget had been passed?

Shaffir asked such questions in a petition to the High Court of Justice a month ago. Shaffir asked the court to all but cancel budget transfers – changes to an already-approved state budget that the Finance Ministry presents to the Finance Committee.

Shaffir, a young and intense MK still possessing the spirit of social protest that she helped lead in the summer of 2011, thought transfers among sections of an approved budget should stem from events that couldn’t be forecast in the first place. Instead, she discovered that this was the treasury’s standard method for managing the budget. Many transfers are known about in advance and should be included in the original budget.

This is the suspicion concerning the compensation to the settlers that was transferred in 2013.

“From these matters it clearly seems that this spending was expected and planned, because its source is a cabinet decision to freeze construction in Judea and Samaria in 2010,” wrote Shaffir in her petition. “In light of this, there is no doubt that the information concerning this spending was known to the Finance Minister before the budget law was legislated, and it could have been included in the budget framework.”

Speaking to TheMarker, Shaffir called this spending “political money.”

“It’s a secret channel of the treasury for transferring money to the settlers,” she said. “Since October, the Finance Committee has approved about 400 million shekels for the territories. The treasury is a tool for the politicians. It has all sorts of deals with them, and in return it helps [the politicians] pass the theft of money for purposes dear them.”

Circumventing the budget law

Shaffir says this is the treasury’s modus operandi; the transfer of funds to the settlements is just one example. According to an investigation by the Knesset Research and Information Center at Shaffir’s request, about 85% of budget plans are changed somehow during the budget year.

Further research showed that the method of budget transfers during the budget year is very convenient for the Finance Ministry because the Finance Committee’s supervision of such transfers is loose. The study showed that 50% of the requests for budget transfers are approved by the Finance Committee automatically; only 25% of the time is a proper discussion held.

Shaffir says this is the heart of the matter: Budget transfers are the treasury’s way to move money back and forth without proper parliamentary and public scrutiny. In this way, it can circumvent the budget law in which these transfers should have been included.

“This is the treasury’s method,” Shaffir said. “Two months after the Knesset passes the budget, they start asking for transfers under all sorts of unclear titles like ‘aid for the Housing and Construction Ministry.’ Are these are grants for people who don’t own homes or for the ultra-Orthodox?”

According to Shaffir, the treasury does not provide details and becomes evasive when people start asking questions.

“We discovered, for example, that there are local authorities that have received the same transfers for 20 years. Why is such a transfer not included in the basis of the budget?” she asks, referring to the annual funding mechanism that is updated for inflation.

“It’s clear why, since it gives the treasury control .... That’s how these local authorities are dependent on the treasury’s good will.”

Shaffir asked her questions in cooperation with the Public Knowledge Workshop, a nongovernmental organization established following the 2011 social protests. So the treasury now sends requests for budget transfers to the Finance Committee a week before the discussion there, instead of the very morning of the vote.

This obvious change was made at the request of the new generation of MKs, including Shaffir. In the previous Knesset, no one even thought to ask for such a thing. Former Speaker Reuven Rivlin has lauded “a new generation” of MKs “who are unwilling to vote without knowing what [they’re voting for]. These are days of revolutionaries – and the Knesset needs to change appropriately.”

Treasury learning its lessons

Senior Finance Ministry officials admit that the quality of discussions at the committee has improved.

“The meetings are much more effective,” one official said. “The people from the Budgets Division, who were used to automatic approval, used to come to the meetings unprepared. We’ve learned our lesson, so now they have to prepare and bring along other experts who could be relevant to the discussion.”

Still, the Finance Ministry insists that it be allowed flexibility. This way it can manage risks when there are uncertain projects, and it can make up for the government’s shortcomings in implementing projects. Sometimes projects progress at a much slower pace than originally planned.

With such flexibility, part of the budget is conditional on implementation. In this way, the ministries have incentives to improve their performance.

“The Knesset certainly doesn’t want for us to budget all projects in advance at 100%, even though it’s well known that some projects get stuck in the middle,” a treasury official said. “And if such a project gets stuck, we won’t be able to transfer the [project’s] remaining budget to another budgetary use. This would cause chronic under-use and force us to cut the budget when there are surpluses stuck in sections that aren’t used.”

In any case, Finance Ministry’s main objection is based on Shaffir’s militancy.

“Does Shaffir really want that we put the construction freeze into the basis of the budget?” a treasury official said. “If it had been put there it would have immediately disappeared and remained there forever. There’s no way anyone would find this money when it’s hidden in thousands of budget regulations.”

The debate on approving the budget is much weaker than the Finance Committee’s discussions on transfers, he added.

“The fact that these transfers require separate approval by the committee is what allowed her to expose this money,” he said. “Here Shaffir started asking questions, and suddenly the money transfer was frozen. Parliamentary oversight of the Finance Committee – now that it has learned to ask questions – is especially necessary.”

Stav Shaffir. She's fighting what she calls 'political money.'Credit: Oliver Fitoussi