Treasury Wants More Powers to Rein in Future Overspending

Director general of PM’s office has met with senior treasury officials, they are on the verge of an agreement to allow the Finance Ministry to keep track of financial commitments stemming from cabinet decisions.

The Finance Ministry will most likely soon be granted new and greater powers to rein in overspending.

The director general of the Prime Minister's Office, Harel Locker, has been meeting with senior treasury officials, and they are on the verge of an agreement to allow the Finance Ministry to keep track of the accumulated financial commitments stemming from cabinet decisions. The treasury would then be able to warn the cabinet when these commitments exceed the approved budget.

The agreement on the treasury's new powers is intended to prevent a repeat of the situation forecast for the 2013 state budget, which in its present form includes NIS 14 billion in excess spending commitments. These commitments are the sum of a number of cabinet decisions made over the past four years.

For now, however, it is still unclear whether the treasury will only have the power to warn that spending has exceeded the limit, or whether it will also be granted the power to do something about it. If the treasury is only authorized to inform the cabinet that its promises will lead to overspending in the future, then it will be up to the cabinet to decide whether or not to do anything about it. But if the treasury gets its way, then a factor called the "numerator" will become a true spending limit for future years, just as the annual budget framework is a hard limit.

The "numerator" is supposed to become a sort of ceiling for future budgets, to be used alongside existing limits on spending, deficit and tax revenue forecasts, and the target ratio for national debt to GDP. All of these now exist only on an annual basis, as part of each year's budget, but are not commitments for future years' budgets. For now, the plan is to attempt to forecast all these factors up to three years in advance, and then limit future spending accordingly.

If the treasury does get the powers it wants, the cabinet will be forced to make tough decisions not only about the present year's budget and that of the following year, but also those farther down the road. For example, if the cabinet decides on additional spending for something three or more years down the line, then at the same time, it will also have to decide where the funding will come from, in the form of either specific cuts or higher taxes, to remain within the budget framework for three years from now.

Currently, the cabinet is only committed to the present year's budget ceiling and, once it approves the following year's budget, that one as well. Usually, next year's budget is approved in August, though the 2013 budget has yet to be brought before the cabinet.

In contrast, future years' budgetary frameworks are unknown - and certainly aren't a commitment. This is how the huge overspending for 2013 came about: The cabinet and Knesset approved a long list of spending hikes, including free preschool education from age 3, new salary agreements for doctors, social workers and teachers, and additional spending on higher education. All these were approved without any attempt to determine what the total cost would be - or where the money would come from.

One question discussed by the treasury and the PMO in their talks over the new powers is whether the treasury's spending warnings should be made public. One proposal was for the cabinet to disclose future spending plans quarterly, complete with estimates for up to three years in the future. This would allow the public to gauge whether the government is making promises it won't be able to pay for, or where the necessary funds would come from, such as higher taxes.