One of the first steps taken by Yair Lapid when he became finance minister in the previous government was to fire treasury director general Doron Cohen and the head of the budget department, Gal Hershkovitz.
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The speed and manner in which it was done left the majority of the ministry’s employees with bitter feelings, creating an uncomfortable atmosphere around the minster’s bureau. People at the treasury hope and believe that the arrival of Moshe Kahlon, who by most accounts will likely succeed Lapid, will have a different outcome.
Nevertheless, tension and uncertainty prevail at the ministry, pending Kahlon’s expected arrival. Officials there say that for the benefit of the economy and the future of the treasury itself, it would be best if the Kulanu chief did not launch his tenure with dismissals of senior staff, but allow them to complete their terms without fear of dismissal – as was the custom with nearly all finance ministers who preceded Lapid. New people should only be brought in when these terms end, they believe.
Treasury officials believe that the immediate dismissal of senior staff will lead to a loss of direction and shelving of plans, with wasted experience and knowledge that was gathered before the 2015 budget was assembled. Also, such dismissals could deter potential candidates the treasury would like to recruit from applying. Given that, it’s important that the new minister quickly appoint a top-notch senior adviser or advisers to work closely with him, unlike the situation during Lapid’s term in office.
The treasury, including the Tax Authority, has 7,000 positions, with a director general at the top of the pyramid and seven department or unit heads serving under them, although these are equal in status, pay and benefits to director generals in other government ministries.
The director general’s post is filled according to the choice of the incoming minister, with the minister entitled to appoint the person he deems to be most suitable. Division heads are professional appointments for 4-5 years, made by the cabinet – usually unanimously – based on recommendations by the finance minister.
Nearly all senior appointments in the past, especially after plans to stabilize the economy in 1985, have been made on a professional basis, disconnected from the political leanings of the appointees. Political nominations were restricted to the topmost echelons, not the middle ranks, but these too were also based on professional qualifications.
Annual or biennial budget?
One of the first tasks awaiting the new finance minister is to bring the 2015 budget for ratification by the Knesset. The new government has to approve the new budget by mid-August – otherwise the government falls. In order to prepare and pass the 2015 budget, the new minister will need experience, knowledge and the goodwill and skills of the treasury team – and dismissals will definitely hurt this process.
The new minister will have to decide almost immediately whether the new budget will be an annual one or a biennial one covering 2015-2016. Senior officials will try, due to convenience and time pressures, to press for a biennial budget, as did Lapid when he arrived in 2013.
However, Kahlon, who promised significant changes to the budget in order to address social issues, is expected to prefer separate annual budgets. The 2015 budget will not be amenable to many changes beyond what was prepared by the treasury under Lapid and approved by the outgoing government. The 2016 budget could be the turning point at which Kahlon can introduce the changes he wants made to government expenditure.
Regarding the time crunch, the previous Knesset showed that the approval of the budget could be postponed from September – the customary month of approval – until December (the first reading of the 2015 budget was only passed on December 11, 2014). This will enable Kahlon to bring before the Knesset two separate annual budgets at the end of 2015.
It’s widely believed that the last two years were among the worst in the treasury’s history. In order to once again take the lead, the treasury needs reforms and renewal, and a real strengthening of some of its weaker aspects. Implementing these changes will be among the major tasks facing Kahlon, assuming he gets the job.
Kahlon’s temperament – so different to Lapid’s – could lead to better working relations and less alienation between the minister’s bureau and other ministry employees. The new minister will be more accessible to senior staff than his predecessor was. Senior officials in the treasury, as well as people who closely work with the ministry, agree that the director general’s post needs to be upgraded. It is preferable, they say, that the post be filled by an academic economist, an expert in macroeconomics with a broad vision and extremely familiar with Israel’s economy.
Among all the division heads in Israel’s most important ministry, there is not one person with a PhD in economics, and none of the recent ministers held degrees in economics, business administration or accounting. The ministry lacks a guiding economic theory, and the new director general should compensate for this gap. He or she will have to maneuver between the often inflated egos of the seven department heads, inducing them to work together for the benefit of the economy.
Budget divisionneeds shaking up
The budget division is one of the treasury’s most important departments. It was undoubtedly the leading one in the past, and a former finance minister dubbed it the Sayeret Matkal of public service, referring to the general staff’s elite special-operations force. Its standing has been somewhat eroded in recent years, although it still dominates the public sector.
Officials at the treasury admit the department is due for a shake-up and reinforcing, in view of the multiple and complex tasks it faces. When the current head of the budget department, Amir Levi, ends his term (he has been in office since August 2013), his replacement should be a senior academic figure who has never worked at the treasury before – so he has no preconceived ideas – or some other senior economic personality with a proven track record in the business sector and a solid macroeconomic background.
The new department head will need to know the workings of the Knesset and government, and have to lead his team, shaking up the department and placing it on a new and modern path.
Until now, it was customary to appoint someone who grew within the ranks of the department, reaching the position of deputy director, then working for a while in the private business sector before returning to head the department.
This routine had many advantages, but also some drawbacks. The latter have grown in recent years. The main problem was that all recent department heads came from the same school of thought, with a very similar view of economics, being biased toward a small government, and small development and social budgets, along with large defense budgets.
So, how did Israel deteriorate to such a lowly place among developed nations in terms of social issues and infrastructure? Without doubt, the budget division in recent decades shares some of the blame, along with governments and prime ministers.
The changes in the budget department should tackle not only the top echelons but also the ones beneath it, which likewise need renewal. The department became a key part of the public sector after the plan for stabilizing the economy was laid out in 1985, following one of the most serious financial crises to hit Israel.
As part of the blueprint for solving the crisis, a decision was made to give more power to the budget department, supervised by the finance minister, in constructing state budgets. In fact, the whole budgeting process was overhauled.
Success was rapid and already by 1986, and in subsequent years, results could be seen on the ground. Decision makers and the public were surprised: Inflation was almost gone, debts and deficits were significantly reduced, and the economy grew while unemployment declined.
All of these strengthened the standing of the department in the government and public eyes.
One of the reasons for the department’s success over the last 30 years was the excellent workforce it attracted. There are 60 employees in the budget department.
Young people who excelled in studying economics or business administration join the department as referents. If they succeed, they become coordinators after a few years as referents (the average being four years). After stints as coordinators they can become unit heads, who serve as deputy department heads. There are five or six such deputies. They then leave for attractive and lucrative jobs in the private sector. This usually happens after 10 years at the department, when they are aged 35-40.
This system worked well in the 1990s and the following decade, but is less appropriate today. Treasury officials themselves say it’s time to make changes and improvements. Many argue it’s wrong to place the fate of defense, education, health and infrastructure budgets in the hands of someone who has just finished studying, whether one or 10 years ago. The claim is that nearly all department employees are young people without experience in the business world; people who’ve never managed a company or business, or supervised employees other than at the treasury.
Those pushing for reforms argue that more experienced people should be hired, some with advanced academic degrees and with some experience in the academic world, the financial sector, industry or high-tech. This will make the treasury more diverse and create a broader vision.
A further complaint against the department’s current structure is the age of retirement from the treasury to the private sector. The argument is that the department takes in young people who have just obtained their degrees, yet have little or no experience. They gain experience for a few years at public expense, learning all the tricks of the trade, and, just as they are at their peak, leave for the private sector at the ages of 30-40. This sector then benefits from their skills and experience for decades. Some argue that the best among them should be retained at the treasury for many years, as is done at the Bank of Israel, where many employees remain for their entire career.
Implementing changes at the budget department requires the will to bring it about, as well as investing thought and planning into how to change things. Only a reformer finance minister will be able to achieve this, one with a long-term view and the ability to carry it out, working in tandem with a like-minded director general.