Analysis

Israel's Budget Constraints Make a Narrow Coalition Unlikely

Kahol Lavan can’t fund all the Joint List’s and Yisrael Beiteinu’s demands amid a sharply growing fiscal deficit

The Ministry of Finance
Emil Salman

Two unexpected political figures were seen last week at the entrance to the Finance Ministry building in Jerusalem last week. One was Avi Nissenkorn, the former chairman of the Histadrut labor federation and the No. 5 candidate on the Kahol Lavan list. The other was Chili Tropper, No. 12 on the list.

The two were visiting the treasury budget division to get background information on the fiscal issues that are likely to come to bear in the coalition talks they are managing.

With less than a day left before Kahlon Lavan leader Benny Gantz’s mandate to form a government expires, the budget isn’t high on the political agenda right now. In theory both Kahlon Lavan and Likud are ready to pay the price in budget handouts to prospective coalition partners, but in practice they don’t have much currency to trade with.

If a government is formed this week, its first task will be to pass a 2020 budget by March 31 – and it will contain big spending cuts due to the ballooning deficit. Any coalition agreement will have to include understandings on the budget. Conversely, the failure to pass one in time will lead to the coalition’s fall.

This doesn’t square with the option of forming a narrow government. Whether it’s a narrow government of the right or of the left, its junior coalition partners will demand a high fiscal price to join it. Take Avigdor Lieberman’s Yisrael Beiteinu. The party’s core demands surrounding religion and state won’t cost anything, but its less publicized demands for a minimum pension for every Israeli carries an annual price tag of 2.5 billion shekels ($720 million).

In a scenario where Kahlon Lavan relies on the support of the Joint List, the financial demands will be steeper. A policy document prepared by the alliance of Arab parties just over a month ago calls for 64 billion shekels in spending over the next decade for community development for the country’s Arab citizens.

Other demands call for the state to fund a target 20% of Israeli Arabs employed in the public sector within three years, as well as the construction of a university and a hospital in an Arab city, and new industrial parks and high-tech complexes.

Kahlol Lavan may agree to cost-free demands like rescinding the Nation State Law and freezing the razing of illegally built homes in Arab towns, but the demands that call for billions in extra spending are another story.

Although talks between Kahol Lavan and the Joint List haven’t included an exchange of proposals or been conducted on an official level, the parties have been in constant discussions over the last few weeks. On Monday, Knesset member Ahmad Tibi termed the talks a “fictitious pregnancy.”

He said Gantz had promised to advance Joint List agenda items, like a war on crime in the Arab community, but he also wants a significant expansion of a 9.5 billion shekel initiative for Arab community development adopted by the Netanyahu government in 2015.

“We want a new plan because the previous one hasn’t been completely implemented,” he explained. “It doesn’t include areas like welfare, health and Arab employment. We are demanding that the program will include mechanism that will improve the chances of all the money being spent.”

Under these circumstances it’s hard to see how Kahol Lavan can live up to its promise to voters not to surrender to the budgetary demands of its coalition partners. The reality is that whatever money it saves from reducing funding to the ultra-Orthodox and the settlers will end up going to its coalition partners.

The fact is that the path to a narrow government supported by the Joint List is narrow to begin with. Lieberman has expressed opposition, as have Kahol Lavan lawmakers like Zvi Hauser, but budgetary constraints could prove to be as big an obstacle – if not bigger.

The right is still hoping that Lieberman will agree to sit in a right-wing coalition with the Haredim – this was the subject of discussion in the right-wing bloc on Monday. But it’s difficult to imagine Lieberman sitting in the same government with the newly formed “Shabbat bloc” formed last week by Shas, United Torah Judaism and Yamina.

On the other hand, a national unity government might be a more comfortable home for Yisrael Beiteinu and the ultra-Orthodox. At a Yisrael Beiteinu meeting on Monday, Lieberman said that after the government he hopes will be formed passes the 2020 budget and a multi-year plan for defense spending, he is prepared to consider letting other parties join it.

That was widely understood to mean that the ultra-Orthodox parties would get an invitation at a later stage – after Lieberman is confident that the optics won’t look bad from the perceptive of religion-and-state issues. If so, get ready for a new raid on the budget.