Analysis |

While Israel Burns, the State Budget Is Frozen

Seven good reasons why the government should stop dragging its feet and get its finances in order

Sami Peretz
Sami Peretz
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Small business owners protest in Tel Aviv, October 15, 2020.
Small business owners protest in Tel Aviv, October 15, 2020.Credit: Tomer Appelbaum
Sami Peretz
Sami Peretz

The High Holidays are behind us, an easing of the lockdown lies ahead and we’re racing toward the end of 2020. This is the time businesses and organizations are busy preparing their work plans and budgets for 2021. Except for one: the government of Israel.

Unfortunately, the fact that the state budget has been taken hostage by this dysfunctional government will reverberate throughout the economy – and to just those businesses and organizations trying to plan for next year. So long as the government doesn’t clarify what its priorities are for the coming year and how it plans to advance them, how can anyone else do so in Israel’s centralized economy?

Haaretz Podcast: Why is Israel arming Azerbaijan against Armenia? Listen to Yossi MelmanCredit: Haaretz

In one respect, the lack of a budget is signaling one priority – that of Netanyahu to bring down his own government and call an election. If that’s so, however, he should make it clear. At least it would be one point of certainty in the otherwise chaotic situation created by the coalition.

Netanyahu’s political calculations aside, here are seven reasons why a 2021 budget should be approved by the Knesset before the end of this year, even if the formal deadline is March 31, 2021. They have nothing to do with coalition politics or the bruising rivalry between Netanyahu and Alternate Prime Minister Benny Gantz.

1. Economic logic: Without a budget, the government’s priorities become chaotic and confused. Right now, when Israel has urgent needs, such as the purchase of medical equipment, allocation for social needs and unemployment benefits, and loans and grants to business, it is all being done by the seat of Netanyahu’s pants.

Money is wasted, most notably in the 9 billion shekels ($2.7 billion) spent on one-time grants to each and every Israeli citizen, regardless of need. That’s not setting priorities, that’s the prime minister playing politics. You want to give money to everyone? Please do, but it should be part of a planned, thoughtful budgeting process, not as a political maneuver.

It’s not just the one-time grants. The government has turned the budget into fiscal capsules where money is allocated for specific purposes, such as the coronavirus, education and defense, without a global perspective. If you’re not in the right capsule, you get nothing.

2. Restoring certainty: Like every economy coping with COVID-19, Israel’s has been hit hard and its debt in relation to gross domestic product has been rising, as has unemployment. Wherever you look, uncertainty about the economy prevails. The basic medicine that the government could provide is to restore certainty by making clear what it will be doing in 2021.

Without a doubt, next year will be full of surprises for good or ill, no matter what the government does. There could be a vaccine, or there could be another wave of the virus.

But a state budget would ensure at least one less surprise. It can serve as an engine of economic growth and a horizon that extends beyond one or two months. In a small way, the government did just this when it extended unemployment benefits until June 2021.

That isn’t nearly enough. It needs to provide ways to boost overall economic growth, such as by providing hundreds of thousands of Israelis professional training and preparation for the new economic reality.

3. Israel’s credit rating: The international credit rating aces, which this week begin their annual review of Israel, may lower the country’s credit rating. If that happens, it won’t be because of our macroeconomic numbers, but because of how the government is acting and the chronic political instability, which is expressed partly in the absence of a state budget for either this year or next.

4. At the treasury, three of its top officials – Accountant General Ronny Hizkiyahu, Budget Director Shaul Meridor and Director General Keren Eyal-Terner – have all left in the space of about 10 weeks. That not only adds to the atmosphere of uncertainty but leaves the ministry desperately short of professional leadership amid the politicization of some coronavirus decision-making.

A negative outlook, the rating equivalent of a yellow card in soccer, would be bad enough. A lower credit rating will increase Israel’s borrowing costs in international markets. And if it happens, it won’t be easy to raise it again. Passing a 2021 budget would send a positive message, that the government can function despite all the problems it is contending with.

5. Public trust: One of the most serious problems created by the coronavirus crisis is the growing distrust of the government by ordinary Israelis, between various segments of Israeli society and even among the coalition’s two major partners. The lack of solidarity exacts a heavy cost in friction between civilians and the law enforcement authorities, and in excessive use of force by the police.

The fact that so many elected leaders and top officials themselves have been caught violating the rule they approved of, and are supposed to uphold, has been a major reason for the distrust.

The absence of a state budget is making it worse because it expresses the government’s contempt for the ordinary citizen, the business sector and the economy. If Israel’s leaders can’t manage to put into place such a basic element of economic life, it only confirms the public’s worst fears about the politicians’ motives and priorities.

6. Agreements should be honored: Clause 30 of the coalition agreement between Likud and Kahol Lavan says it quite clearly. “Close to the formation of the government and no later than 90 days from the date it is sworn in, the coalition is committed to proper passage of the state budget, including special budgets for coping with the coronavirus crisis. The budget will be a two-year budget for 2020-2021. The state budget will be adjusted from time to time in accordance with the government’s changing needs during the crisis.”

Only now, and not entirely convincingly, are Netanyahu and Finance Minister Yisrael Katz talking about passing budgets for 2020 and 2021. Stay tuned

7. No reforms: Kahol Lavan and the entire center-left paid a heavy price entering a coalition with Netanyahu. By splitting Kahol Lavan into two, it ended the one realistic alternative to a decade of Netanyahu’s rule.

It also left Israel with its worst government ever, and one reason for that is the non-passage of the state budget. This has forced Kahol Lavan to flex its muscles elsewhere, for instance in blocking the economic reforms contained in the Economic Arrangements Law (the legislation that is passed every year together with the budget).

This is an absurd situation. Likud isn’t prepared to honor its promise to pass a budget, so Kahol Lavan counters by rejecting the Arrangements Law. It’s a lose-lose balance of power, where the economy and Israel’s citizens are the biggest losers of all.

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