Treasury in No Mode

The good news is that the condition of Prime Minister Ariel Sharon's illness shouldn't affect the Finance Ministry's management of the national budget, until the elections. The bad news is that actually, it doesn't matter, because in any case the Finance Ministry's management of the budget can be expected to be particularly appalling.

For four months, since the announcement that elections were brought forward to March 2006, the Finance Ministry has been in No mode: for safety's sake, its default position is so refuse any and all budget requests. The chief Dr. No in the months to come can be expected to be the accountant-general.

The three first months of 2006 therefore look doomed to shrivel in the fiercest budgetary drought ever. Anybody needing government money in that time had better look for it somewhere else. Many had hoped the treasury would turn especially generous ahead of the elections, but this time the horn of plenty is going to disappoint, if only because the accountant-general has no money to dispense. Nor will he, until April at the earliest.

The law is what's leaving the accountant-general and the state without a shekel to hand out. The Knesset failed to pass a budget by the start of 2006, so under law, the government must budget its monthly outlay according to the 2005 budget divided by 12. Therefore, its budget for the first three months of 2006 is NIS 67 billion, a quarter of the 2005 budget.

It sounds like a lot

In any other year, NIS 67 million for three months would be considered a godsend. Ministries spend most of their budgets toward the end of the year, so dividing the budget equally by 12 should do well by the first months, right? The ministries should by theory get more money than they need for those three months, creating convenient grounds for politicians to indulge in election economics and cronyism, without even breaking their budget boundaries.

Not this year. Under the law, the spending each month of 1/12 of the 2005 budget will be according to strict priorities. First of all the government has to pay its debts (to bondholders, to suppliers, and payments it must make under law, such as child allowances). Then it has to pay public-sector wages. Only the remainder can be used for special projects, subject to the approval of the treasury's irregularities committee.

In any other year, the restriction wouldn't be an onerous one. But in 2006, it is particularly effective. Unusually, in March the state faces an  NIS 26 billion bill. Throughout the first quarter, its repayments total NIS 33 billion, which leaves it only NIS 34 billion to pay subsidies, salaries and debts to suppliers. Ergo, after paying all that, it will be effectively all but broke.

There is good news, though. We are spared election economics because there isn't any money to pay for it. But there is bad news: from the start of the year until the government pays its debts through March, and passes the budget for 2006 (which will probably only happen in May or June), we shall live in an era of budgetary restraint never known before. It will do nothing good for the national mood.