Who Takes the Rap for the Gaping Hole in the 2012 Budget?

The treasury has already begun reforming fiscal management.

Meirav Arlosoroff
Meirav Arlosoroff
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Meirav Arlosoroff
Meirav Arlosoroff

Who should take the rap for the massive NIS 39 billion deficit in the 2012 budget?

Most say the blame will fall on Udi Nissan, the head of the Finance Ministry's budget division. Sources in the division say Nissan overruled his professional staff who were less sanguine than he was about projected tax revenue for the year.

But his policies were adopted by the entire staff, so the onus falls on the whole budget division. Besides, Nissan has already stepped down, meaning a hunt for a lone guilty party will not yield any results.

What's left is to search for the root of the errors and the lessons that can be learned.

Indeed, the lessons are many. They include technical lessons, such as how to manage a two-year budget, and whether the revised rule on increased spending has been a success.

There are also those who question a new rule allowing for greater annual spending increases. They note that the minute the Histadrut and public sector workers realized the budget was growing, a wave of strikes and salary demands got underway. The only way to manage fiscal policy in Israel is with an iron hand, they say - the minute the grip is eased, the Finance Ministry loses control.

But there are other, more fundamental lessons regarding the role of the treasury budget division as the body responsible for planning and managing the budget.

"The fiscal challenge is huge," says one treasury official. "That's our sacred cow, and next to it everything else is negligible." Even if the division is having second thoughts about the wide-ranging responsibilities it has assumed over the years, he says, it would be unfortunate if it were to lose power over its principal function, namely ensuring fiscal discipline.

The ministry is promoting proposed changes in the way the budget is managed that are supposed to make the budget simpler and much more transparent, and that would give the treasury less control over small budget items. The goal is to give the treasury more time to deal with critical matters.

The initiative started with a plan by the budget division to free up ministry budgets and transfer more authority over spending to the ministries themselves. This was to be done by reducing the number of fiscal regulations - which empower the Finance Ministry budget division - to 4,000 from 8,000. It would also be accomplished by giving ministries more power to transfer funds from one section of the budget to another.

Other proposals call for more organized, long-term management of government fiscal commitments. Under the supervision of the National Economic Council and the Bank of Israel, these committees would look at obligations four years into the future.

The aim is to prevent another failure like this year's: The government has undertaken commitments to the tune of NIS 30 billion over the past four years, all of which will be dumped on this year's budget.

Along the way, the Finance Ministry will be giving up part of its exclusive control over fiscal policy. From now on, control over future commitments is to be organized and transparent, with the public once every quarter being allowed to review the extent of future commitments. That means the secrecy of the auto-pilot budgeting method is coming to an end - at the Finance Ministry's own initiative.

In order to ensure effective supervision of this method, the treasury has agreed that another fundamental change needs to be made to the way fiscal reserves are managed. The reserves must no longer be a state secret known only to the treasury; they must be more transparent, with clearer rules of management. On this matter, too, the treasury is surrendering the control it has exercised over the decades.

The final element is the transfer of control over long-term planning from the treasury to the Prime Minister's Office. The PMO's National Economic Council will have a say in long-term planning - in other words, structural reforms, an area that was once the province of the Finance Ministry alone.

The sum total of the changes means that the treasury budget division will deal less in trivial matters and concentrate more on strategic thinking and supervision of the main points of the budget.

The men from the ministry: Budgets Director Gal Hershkovitz, left, and Finance Minister Yuval Steinitz, right.Credit: Michal Fattal

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