Is Israel’s government taking care of its citizens? To answer the question we must examine its use of its sole and primary means of execution, the state budget. Since the 2011 summer protests, when Israelis began to realize that the only thing that really matters is the budget and its administration, public oversight of the budget has gained momentum, to everyone’s benefit.
This new focus has prompted questions about the most critical issue in budget management, and that is its composition: In other words, does the national budget accurately reflect the government's declared order of priorities?
The answer given by the Bank of Israel to this question is a resounding No. According to an analysis of state budget spending in the past decade carried out by the head of the macroeconomics and policy division in the central bank’s research department, Adi Brender, head of the central bank's macroeconomics division, if there has been a shift in priorities it hasn’t been expressed in the budget. He compared the annual budget for 2004 and for 2014 and concluded that its composition is largely unchanged.
The analysis including civilian expenditure only, excluding defense spending and interest payments. The overall distribution of spending changed little between 2004 and 2014, Brender found. Education, for example, comprised 25% of state nonmilitary spending in 2004, the same proportion accorded it in the 2014 budget. The share of spending on health declined slightly over the decade, from 13% to 12%. Spending on national insurance and welfare services was unchanged. This, despite the state’s declared war on poverty and on socioeconomic inequality since 2007. Evidence in the budget for this agenda is scarce on the ground.
In fact, the only change in priorities that is reflected in the distribution of civilian spending is in transportation, an area that is a favorite of Prime Minister Benjamin Netanyahu. Allocations for transportation as a proportion of the national budget doubled, from 3% in 2004 to 6% in 2014. Paying the price for this largesse are the budgets for housing, whose share of nonmilitary spending dropped from 3.5% to 2.1%, and local governments (from 3% to 1.6%). Anyone Iooking for proof that the government has stopped spending on housing and has turned its back on the local authorities since the 2003 crisis need look no further.
The government isn't really in control
The Bank of Israel's sad conclusion from this analysis is that the government isn't really in control. It does not genuinely determine the composition of the national budget and is largely incapable of significantly changing its priorities, and as a result most expectations held by Israelis of being cared for by the government are unfounded. The most powerful force in Israel is inertia: What was, will be, on the whole.
But before lamenting the impotence of successive Israeli governments, we would do well to reexamine Brender's report, to look at what his analysis left out - the defense budget and interest payments. That’s where there were big changes over the past decade.
The share of defense spending in the national budget fell from 24% in 2004 to 19% in 2014, and during this period the proportion of the budget that went to interest payments declined from around 13% to around 10%. That adds up to around 8% of the combined budget, or around NIS 24 billion, directed from military spending and debt servicing to nonmilitary spending.
And that means that the share of the state budget devoted to nonmilitary spending rose in the past decade by 8%, a significant increase. Although the distribution of the nonmilitary budget by category barely changed, because the pie itself grew spending within each category increased substantially.
The conclusion to be inferred from the Bank of Israel analysis is that the government finds it difficult to reorder its nonmilitary spending priorities, perhaps out of a reluctance to make cuts in one area in favor of another. By avoiding such unpopular decisions, the government ends up doing a disservice to its citizens.
It has much more control over areas such as defense and debt servicing, where populist considerations have less influence. The enormous effort made early in the last decade to reduce deficits and borrowing has paid off in lower interest payments. The recommendations of the Brodet committee (which examined the defense budget in 2006-2007 ) and the attempt to rein in the ballooning military budget made a very important contribution to improving public services.
So it was disappointing that this budgetary discipline was relaxed to such an extent in the previous Netanyahu government that our ability to increase nonmilitary spending in the future is now in jeopardy. Netanyahu’s current government has the power to restore that discipline, to guarantee that the state can continue to see to the welfare of its citizens in deeds (money) rather than in words alone.
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