Since Benjamin Netanyahu dismissed Yair Lapid as his finance minister earlier this month, the prime minister himself has served as acting finance minister. But he has a lot of other matters to tend to, including the Likud primary at the end of this month and, further down the road, the Knesset election on March 17. Adding to the mix on the economic front is the fact that the country will be entering the new year without a state budget, with the current one expiring on December 31.
- The sad story of Yair Lapid
- OECD cuts Israeli economic growth forecast for 2015
- Israel's solid fiscal performance loses some shine in November
- Cabinet approves $88 billion budget for 2015
- Finance ministry targets reforms for 2016 budget
- Israel election updates / Labor approves unity deal with Livni's Hatnuah
- Moody’s: Early elections ‘credit negative’ for Israel
All of this raises the potential for uncontrolled spending and the allocation of funds for political purposes during the final two weeks of 2014. Every December, the Finance Ministry is hit with a flood of year-end spending demands, but the spending this year may be particularly riotous. The situation places added responsibilities on the shoulders of senior Finance Ministry staffers, who may have to stand up to the political pressures. And Netanyahu has yet to say anything publicly about whether he intends to hold onto the finance portfolio until a new government is formed, or appoint a replacement for Lapid. He may not have reached a decision on the matter himself.
The jump in year-end spending is a practice that the state comptroller has expressed concern about in the past. The phenomenon is reflected, for example, in government outlays at the end of last year. In November 2013, the government spent 23.1 billion shekels ($5.9 billion at current rates), while last December the outlay jumped by 64%, to 37.9 billion shekels.
40 billion shekels in one month
This year, November’s spending came in at 23.9 billion shekels, similar to last year’s figure for the month. But it’s almost certain that December spending will be around 40 billion shekels this year.
Why spend 40 billion in one month? Because the Knesset election is in three months, and the prime minister has a lot of needs to address – and can do so with a relatively free hand, given the current circumstances.
Like every December, there is money in the kitty that can be directed to purposes that are out of the ordinary. The 2014 budget was premised on a deficit of 3% of the country’s gross domestic product, or 31.1 billion shekels.
For the first 11 months of this year, the government has chalked up a cumulative deficit of 14.3 billion shekels. That leaves 16.8 billion in additional spending that the Finance Ministry can burn through relatively easily before it would hit the spending cap.
And this year, due to the absence of a full-time finance minister, Finance Ministry staff are faced with the task of proving to the public and themselves that they can withstand the political pressure. They have ways of saying “no,” if that’s what is required in their professional opinion.
Once January 1 comes around, in the absence of an approved 2015 budget the government will operate on a month-to-month basis, with monthly funding comprising one-twelfth of the total budget for 2014 (adjusted for inflation). With elections held in March, it will take time for a new government to be formed, and the new government will have to submit a 2015 budget to the new parliament. That will probably occur in September, meaning that spending will be restrained during most of 2015.