The Knesset Finance Committee’s Leaky Pipeline

Last year, the powerful panel of lawmakers reallocated $14.4 billion – about 13% of the 2014 budget – for purposes the public knows little about, including the settlements.

Zvi Zrahiya
Zvi Zrahiya
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The Knesset, October 27, 2014.
The Knesset, October 27, 2014.Credit: Emil Salman
Zvi Zrahiya
Zvi Zrahiya

The Finance Committee is the most powerful body in the Knesset, allocating funding within the state budget, approving tax changes and supervising the banking system. But worrying signs have appeared in recent years in the panel that oversees hundreds of billions of shekels in taxpayer money. The fear: The committee does not act in the public interest.

Every year, the panel redirects funds from one section of the budget to another. In many cases the changes are done quickly without adequate supervision, and for the benefit of unrevealed vested interests.

As part of the corruption probe into Avigdor Lieberman’s Yisrael Beiteinu party, the police are investigating a long list of budget transfers approved by the Finance Committee. The police are expected to question MKs who are in on the secrets – some of them members of the committee.

How much of the original budget was subject to midterm changes? Haaretz is presenting the figures based on an analysis by the Public Knowledge Workshop, a nonprofit, nonpartisan organization that seeks to make government data more accessible to the public.

In 2014, the data show that the Finance Ministry, with the approval of the Finance Committee, redirected an unprecedented 55.7 billion shekels ($14.3 billion) – almost 13% of the annual budget of 438 billion shekels.

That included shifting reserves left over from the 2013 budget and transferring allocations from various reserve pools. Some of the reallocations arose because of unforeseen circumstances such as the Gaza war last summer. Others stemmed from unspent allocations in ministry budgets and were part of proper fiscal policy.

But over the past nine years, there has been a steady increase in the sums moved around during the year after the budget has been approved by the Knesset.

Typically, the Finance Ministry and other interested parties – usually from the governing coalition but sometimes from the opposition – defy the spending priorities in the national budget without winning the approval of the cabinet or Knesset. For that matter, they succeed without any public debate or transparency.

Between 2005 and 2014, the reallocations amounted to some 30 billion shekels a year on average – or about 11% of the budget. As the budget grew each year, the percentage reallocated by the Finance Committee grew, so that by 2014 it had reached 12.72% (the aforementioned 55.7 billion shekels).

In 2009 and 2013, when the budget won Knesset approval only in the middle of the year because of elections, the reallocations were relatively low, because by law funds cannot be redirected when there is no approved state budget.

In that case, the treasury and MKs can only spend money based on the previous year’s allocation. In years when a two-year budget was in place, the number of transfers rose in the budget's second year.

Confusing the lawmakers

Despite the growth in the size of the reallocations, there is no argument over one fact: A huge amount of money was redirected from one purpose to another via the Finance Committee, with the approval often coming in the presence of only a handful of MKs. Sometimes only the panel's chairman gave the go-ahead.

No detailed information was provided to the MKs or the public on the sources and uses of the money. Instead, lawmakers were typically barraged with confusing and deceptive figures and asked to vote.

The blame for this system of midterm, behind-the-scenes reallocations goes to both the Finance Ministry and the Finance Committee, but the beneficiaries are mainly people well connected to the government and politicians.

While most MKs struggle to follow the money trail, some take a cut for interests they support.

Where do those billions of shekels go?

The first goes under the rubric “new construction,” a budget item that grew several times in 2014 from the amount in the official budget. Fourteen changes were made in this section, adding up to spending of 2.4 billion shekels, compared with the 310 million shekels originally budgeted.

Most of the extra funds came from money unspent in the 2013 budget. It was reallocated by March 2014.

This isn’t something that happened just once last year. In 2013, the new-construction item ballooned seven times from the original 320 million shekels.

The treasury says this section is based on “spending conditional on revenue.” The money, which the Housing Ministry uses to develop infrastructure, comes from fees paid by developers when they buy land, so it's not considered part of the regular budget.

The money has gone for things like when new neighborhoods have been built in places like Modi’in, Rosh Ha’ayin and Ma’aleh Adumim. While developers pay fees when they buy land, the development spending is spread out over years, thus much of the money comes from cumulative reserves, says the treasury.

The powerful Settlement Division

The second big area of reallocations involves the World Zionist Organization’s Settlement Division – the government arm speeding up construction in the West Bank, Negev and Galilee. The government uses the Settlement Division to spend hundreds of millions of shekels with little public oversight.

The division’s base budget grows enormously from one year to the next, and expands even further during the year thanks to the midterm reallocations. It rose more than nine times during 2014 from the original 58 million shekels passed by the Knesset.

In 2013, it rose more than 11 times over the course of the year – to 614 million shekels, up from 58 million shekels once again. The Finance Ministry says some 80% of these additional funds came from unspent budgets from previous years.

In 2014, the Finance Committee approved 15 such transfers for the Settlement Division worth a total of 438 million shekels. Most of the money came from unclear budget sections such as reserves, unspent funds from previous years and miscellaneous expenses, which the treasury usually uses as it sees fit.

Last week, Attorney General Yehuda Weinstein was reportedly considering dismantling the Settlement Division's urban department, but this isn't a simple matter. The justice and finance ministries have set up teams to increase supervision of the Settlement Division.

Another area that grew sizably over the course of last year was the defense budget, which climbed 17% to 70 billion shekels.

A few items in the defense budget skyrocketed, such as “security components,” which surged more than five times via eight budgetary reallocations during the year, to 280.3 million shekels. This money was used for things such as equipment for protecting communities near Gaza, and security for people traveling in the West Bank.

The tourism marketing administration’s budget jumped 337% during 2014 – the amount was increased four different times, to 337 million shekels. The Tourism Ministry used the new funds for marketing in Israel and overseas, and for the costs of Lag Ba’omer celebrations on Mount Meron in the north. It included unspent funds left over from 2013.

The budget for the Regional Development Ministry for developing the Negev and Galilee grew nearly four times during 2014, to 454.2 million shekels. This increase was approved in 24 separate votes in the committee.

Some 10 million shekels was taken from the Environmental Protection Ministry’s budget and another 2.3 million shekels from the Culture Ministry for supporting activities in the Negev. Another 21 million shekels was used for “implementing strategic plans for the communities near Gaza,” and a further 3 million shekels went for institution building in the Arab community in the Galilee.

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