Cabinet Decides: Two-year Budget for 2011-2012, Too

The cabinet approved a two-year budget for 2011-2012 yesterday. No, the cabinet did not actually pass the budget itself or allocate any money, but only agreed in principle that the next budget will also cover two years, similar to the present 2009-2010 budget. The budget for 2011-2012 will be presented only later in the year.

In addition, the cabinet - meeting in a special session - also approved new rules governing the annual increases in government spending. The new fiscal principles proposed by Finance Minister Yuval Steinitz would allow the budget in each of the next two years to grow by 2.6% annually, and not the 1.7% previously mandated.

The cabinet also voted to set the planned budget deficit at 1% a year starting in 2014. The forecast for this year's budget deficit is 5.5%.

The cabinet decisions on all three issues will soon be brought to the Ministerial Committee on Legislation, and then to the Knesset to be passed into law.

The increase in spending for the next two years passed unanimously, while the two-year budget plan had 16 backers and six ministers abstaining, with all the Labor Party ministers and Dan Meridor from the Likud abstaining. They said the two-year budget is much less flexible than one-year spending plans.

The new fiscal rules for determining increases in government spending are based on actual economic growth over the past decade and the ratio of national debt to gross domestic product. In the past the increases were based on economic forecasts, but the treasury now wants to use economic results instead, and to publish a simple and transparent mechanism for setting the spending increase.

The figures for 2011 work out to a 2.6% rise in spending. The calculations are based on assessing the difference between the target 60% debt-to-GDP ratio and the actual ratio, and to multiply that figure by the average annual economic growth over the past decade, based on figures provided by the Central Bureau of Statistics.

Prime Minister Benjamin Netanyahu praised the decision in favor of the two-year budget. He said international economic institutions such as the International Monetary Fund and the OECD also favor the move. But as to the decision to raise the spending targets to 2.6% for the next two years, Netanyahu was more skeptical.

The Finance Ministry was proud of the decisions, saying this is the first time in Israeli history that such proposals have been presented so early in the year, in the early stages of the budgetary process - and cut off from the debates over the actual budget and the Economic Arrangements Law.

Steinitz said: "I am pleased that the cabinet has recognized the importance of the two-year budget." He said it would alow the government to "present long-term plans, ensure economic stability and contribute to economic growth."

For now, the decision on using two-year budgets is legally a temporary, emergency measure and will be reconsidered in the first half of 2012 when the next budget process is underway.

Ofer Eini, the chairman of the Histadrut labor federation, spoke out against the decision on the two-year budget. Eini will raise the issue as part of the round-table economic forum that includes representatives of the Histadrut, the treasury and private industry.

Eini said the two-year budget passed last year was a special occurrence due to the timing of the elections and the establishment of a new government, which forced the budget to be passed only in August of the budget year - too late to pass a regular Budget Law.

"But today, when there are no such limitations, we must return to the proper procedure of a one-year budget," said Eini. He added that 2009 was also a year of economic crisis, which has since moderated.