1. Prime Minister Benjamin Netanyahu will be required to decide on four key macroeconomic issues in the coming days - otherwise the government will not be able to approve the state budget on time. Sources involved in preparing the budget estimated today (Monday) that there is still a small chance that the government will meet the demanding timetable for approving the budget, but it will probably no longer be possible to do so without trampling on some of the good administrative practices that have been formed in recent years around the state budget approval process, and in fact "a miracle will be needed" for this to actually happen.
The Basic Law on the State Economy requires the government to submit the state budget to the Knesset "no later than 60 days before the beginning of the fiscal year" - that is, at the end of October.
The budget bill and the accompanying arrangements bill are being prepared by the Budget Division of the Ministry of Finance - the process takes no less than six weeks from the moment the budget is approved by the government. This year, it has already been agreed that the Budget Division will work on the Sukkot holiday as usual, but the government is still required to approve the budget by the end of next week at the latest, in order to meet the deadline for submitting the budget proposal to the Knesset. The government meeting to approve the 2015 state budget has been set for September 11, that is, for Thursday next week. In order for ministers to be able to properly prepare for the meeting, a practice has developed in recent years whereby the government secretariat sends them the budget proposal 10 days in advance - according to this practice, ministers were supposed to receive the budget in their hands today. This year, this will not happen. As of this morning, the state budget frameworks have not yet been agreed upon, and a follow-up meeting has not even been scheduled for the meeting on the issue that took place last week at the Prime Minister's.
It is interesting to note that this year the Ministry of Finance actually tried to improve the ministers' familiarity with the budget and the Arrangements Law and decided to hold three preliminary meetings of the socio-economic cabinet on the key issues and the proposed structural changes. The first cabinet discussion was held on July 17, at the beginning of Operation Protective Edge, but the other two planned discussions have not yet taken place and it is not at all clear whether they will take place before the cabinet meeting.
2. Even before the government meeting can take place and before the budget proposal can be submitted for consideration by ministers, the government must determine the budget frameworks, primarily the expenditure ceiling and the deficit limit, in accordance with fiscal rules.
Decisions on budget frameworks require the Prime Minister's decisions. An initial meeting on the subject held last week ended without a decision after it became clear that there were substantial gaps between the Ministry of Finance, the Bank of Israel, and the National Economic Council. A follow-up meeting is scheduled in the coming days at which the Ministry of Finance's updated forecast for state revenues in 2015 will be presented to the Prime Minister.
The Ministry of Finance is scheduled to finish updating the forecast after receiving tax collection data for August. The forecast that will be submitted this time is expected to be particularly conservative: first, in light of the expected decline in tax revenues due to the slowdown in economic activity in the economy - a slowdown that was already felt in the disappointing tax collection data for July. second, for the first time this year, the forecasters operated under threat from the State Comptroller, who severely criticized previous heads of the budget department for an overly optimistic revenue forecast they prepared for 2012. The report creates an additional incentive for the Ministry of Finance to underestimate revenue in the upcoming forecast.
3. After the revenue forecast is received, Netanyahu will be required to decide on the burning disputes, chief among them, of course, the size of the defense budget for the coming year. At a time when the defense establishment is seeking to increase its budget for 2015 by 11 billion shekels, the Ministry of Finance is prepared for an increase of 5 billion at most, and is threatening that any increase beyond that will require deep cuts in the budgets of the social ministries. The alternative to such a cut can only be to raise the deficit target to 3.3% to 3.5%, as the Ministry of Finance is proposing - but this step is known to arouse strong opposition from the Governor of the Bank of Israel, Karnit Flug, and the Chairman of the National Economic Council, Eugene Kendall.
The decisions Netanyahu makes on the defense budget and the deficit will have a major impact on the two other decisions he is required to make - raising taxes and the spending ceiling. The Finance Minister has already declared raising taxes as crossing a red line for him, which to a large extent creates a balance of terror compared to the red line of Flug and Kendall on the deficit target. What further complicates the situation is, of course, Lapid's VAT exemption initiative for apartment buyers and additional expenses associated with the recommendations of the German and Allof committees. All of these proposals increase the pressure towards raising the budget spending ceiling by more than 2.61 trillion - when, ironically, it was the Finance Ministry that until recently claimed that this was too high a growth rate.
4. The four decisions that Netanyahu will have to make will inevitably require painful concessions from some of the players - if not all. After Lapid, Flug and perhaps Ya'alon are forced to swallow their frogs, the budget will be distributed to the ministers, who, as mentioned, will have much less time to review it than in previous years. The ministers will probably be indignant, and the result may be the failure to approve the budget at the government meeting on September 11. Such a scenario will almost certainly result in a failure to meet the budget approval timetable in the Knesset. And what will happen if the budget is not approved by December 31, as required by law? In this case, the government will have an additional extension, until the end of March, to approve the budget - while in the meantime it will be allowed to spend 1/12 of the current year's budget each month. This is an unpleasant situation in terms of the consequences it will have on economic certainty and Israel's credibility in the international capital markets. If the budget is not approved by the end of the first quarter of 2015 and the law is not amended, the Knesset will be dissolved and elections will be held.
5. However, none of the coalition partners has any interest in bringing the elections forward at this time. Therefore, according to estimates, if the state budget is submitted, it will also pass. The parties may try to cut coupons and improve positions, but in the end they all want life and therefore will vote for the budget. The question that worries Lapid's people is whether, from a political perspective, it is even worth passing a budget. Yesh Atid is sinking in the polls and losing seats every month. A budget of decrees like the one that is expected to pass could drive Lapid away what little electorate he still has. When he will very soon have to decide whether he gives up on the zero VAT law and tramples on his credibility, or raises taxes and breaks all his promises, there is no doubt that any choice he does not make could lead to an electoral defeat. On the other hand, Lapid knows that if he overthrows the government and leads the country to elections without being able to fulfill any of his promises to the voters, he will be accused of dragging the country into elections - and they will not forget it at the ballot box.
Lapid would prefer not to pass a budget, and to retire for a year or two to the opposition. But for now, it doesn't look like there will be anyone to replace him in the coalition. The Haredim would like to see themselves as replacements, but Lieberman opposes their joining the government, and the Labor Party is not even considering the possibility. Hence, any retirement by Lapid would lead to elections after which it is unclear how many Yesh Atid MKs will get to see the Knesset from the inside. Netanyahu's people are watching from the sidelines with pleasure. They know that Lapid cannot afford elections, and all they have to do is count the mandates that are plunging.
Join the Haredim 10 Facebook page >>
Join the X page of Haredim 10 >>
Want more news, videos and stories? Join the Haredim 10 WhatsApp channel >>
