Israel's Finance Minister Wants His Cake and Eats It Too

He gives Netanyahu the majority that enables him to maintain a far-right government but flirts with centrist and leftist parties. He says he opposes a biennial budget, but also agrees to it.

Finance Minister Moshe Kahlon, March 30, 2016.
Ofer Vaknin

Our finance minister likes to have it both ways. He’s right and he’s left. He’s for a free market and he’s a neosocialist. He’s affable and he’s testy. Around the Knesset they refer to him – in jest, naturally – as “the polite pickpocket.” He runs into you in the corridor, exchanges a few pleasantries, settles something with you and then, as you turn to leave, you suddenly discover that your wallet is missing. Metaphorically, of course.

He gives Netanyahu the majority that enables him to maintain a far-right government that isn’t willing to hold any negotiations and is steadily turning Israel into an outcast, while he flirts with the centrist and leftist parties. He says he opposes a biennial budget, but also agrees to it.

Moshe Kahlon says that a biennial budget is not good for the economy, but he is part of the coalition agreement and “agreements must be honored.” As if someone from outer space was the one who signed the coalition agreement and not he himself. He clearly just wants to have his cake and eat it too.

He wants to be identified with the correct economic position, which is against a biennial budget, but is also well aware that when the 2017-2018 budget passes in the Knesset, it will greatly bolster the government’s chances of survival nearly to the end of its designated term. Which would give him plenty of time to demonstrate success in two areas: reducing housing costs and introducing competition for the banks, if he can manage to pull off any of that.

So anyone who says that Netanyahu is pushing the idea of the biennial budget solely due to narrow political interests, to help his government survive, should also understand that this is Kahlon’s interest too. The two of them are sailing in the same boat.

One thing that’s for certain is that a two-year budget is bad for Israel. It’s undemocratic, because it neutralizes the Knesset for an extended period of time, preventing it from undertaking any socioeconomic initiatives. Second, it blocks the possibility of responding to changes that occur here and elsewhere in the world, such as an unforeseen recession, a military operation or technological advances. Is it any wonder that no private company sets itself a two-year budget? No other nation in the world engages in such nonsense, either – except for Bahrain, where the king decides all.

Everyone understands that in this highly dynamic and uncertain world in which we live, one must remain attuned to events, but with a biennial budget, the Finance Ministry’s budget department will have to estimate by this August the state’s tax revenues in 2018 – and that is simply impossible. It’s barely possible to predict what will happen in 2017.

With an annual budget, if something unexpected occurs in 2017 the deviation can be remedied in the 2018 budget through tax increases or cutbacks. With a biennial budget, this is not possible. Nor is there any “remedy mechanism” that would allow this. As soon as the danger of the government falling has been lifted, the politicians surely won’t lend a hand to raising taxes or cutting spending. They already have an approved budget for 2018, so why rile up the public? Consequently, there is a real danger that we will descend into a large and dangerous deficit in 2018, just as happened with the 2012 biennial budget.

People need to remember that the budget is not just some random collection of numbers. It’s a tool to advance the economy, to boost its growth and efficiency. The budget sets priorities and includes reforms within the framework of the “Economic Arrangements Law” aimed at improving productivity, introducing competition and increasing growth – but with a biennial budget the opportunities to pass reforms are reduced by half, and that’s a bad thing.

It’s quite astonishing that Bank of Israel Governor Karnit Flug has hardly uttered a word on the subject. But not to worry, a few years from now the central bank will undoubtedly publish a research paper on the damage caused by the biennial budget. They’re very good at analysis after the fact.