A make-believe budget

Avi Temkin

There is no connection between the budget proposal submitted and what will really take place during the year.

Any analysis of the proposed state budget submitted to Knesset in recent years should take into account one basic fact: there is no connection between the budget proposal submitted and what will really take place during the year. The emerging proposal resulting from the political arrangement between Prime Minister Benjamin Netanyahu and Minister of Finance Yair Lapid is a make-believe proposal.

Under the arrangement reached by Netanyahu and Lapid, the defense budget will jump by NIS 6 billion in 2015, beyond the NIS 7 billion received to pay for the war in Gaza that the Finance Ministry will provide this year.

For both the IDF general staff and Minister of Defense Moshe Ya'alon, however,the amounted added for next year will be considered for all intents and purposes an addition to the basic budget, even if the Finance Ministry claims that it is a one-time supplement. Furthermore, this supplement is merely a foot in the door. Judging by what Netanyahu's governments have usually done, additional requests totaling billions of shekels will be sent to the Knesset Finance Committee, which will approve them within minutes, depending on deals between the Prime Minister's Office and the HaBayit HaYehudi Party.

Under such conditions, Lapid is irrelevant to budgetary policy in Israel. He can promise to extend the tax base in order to increase tax collections, but he knows that not a single measure will be turned into legislation without overcoming the opposition of various sectors. It is doubtful whether the Finance Minister, who ruled out taxing someone who owns a number of apartments, will agree to real measures to make the tax system more egalitarian. What is important for Lapid is that Netanyahu gives in to his demand for 0% VAT on a purchase of a first apartment from a contractor, and his demand that taxes not be raised. Beyond that, he can promise the public anything.

The question of widening the tax base and adjusting the tax brackets, however, should be a focus of public attention in the coming year, which as of now is looking like a recession year. Under conditions of an economic slowdown, tax revenues are liable to be less than forecast, while the Defense Ministry will demand additional supplements. In the bottom line, the expected budget deficit and/or amounts designated for civilian spending are not really meant to reflect what will actually happen. The Finance Minister can promise an increase in civilian spending, education, and welfare, but the resources needed to pay for it exist only in theory.

Had the Finance Minister attempted to delineate the increase in defense spending - in both amounts and time - it would still have been possible to accept it as a temporary phenomenon. Such a commitment was never given, however, insofar as we can judge. All the Finance Minister can promise the people is that a multi-year plan to make defense spending more efficient in pensions and rehabilitation will be instituted starting in 2016. Until such a plan is put into effect, the Knesset Finance Committee will receive many requests, and anyone who talks about streamlining the system is engaging in science fiction, at best.

Published by Globes [online], Israel business news - www.globes-online.com - on September 28, 2014

© Copyright of Globes Publisher Itonut (1983) Ltd. 2014

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